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.
> Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home.
This is a ridiculous exaggeration: the average US household was 3.7 people in the 1960s, not over 6[1].
There are good reasons to hold politicians to task for recent abnormally high inflation. But this comment is more of an atavistic fever dream of the past than an expression of those reasons.
That's missing forest for the trees. The more important part is that average 3.7 people household was a single-income one.
I would rather disagree with GP's:
> 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.
A lot of the inflation, including how suddenly a single-income household isn't a viable option for most people in the West, is market working as intended - quickly consuming any surplus money, should it suddenly become greater than 0 on average, and slowly eating into any value that isn't bare-minimum strictly necessary to move a product.
The average household also includes empty nesters and people who have moved out yet haven't started a family yet. The average number of children per family in the 60s was 2.3, which means quite a few families had 3 or 4 children.
Ok putting the fever dream aside, even at 3.7 people per household the 1963 to 2024 numbers as it relates to income vs cost of living is pretty eye opening. You are not really disproving the general point by getting fussy over the numbers.
>> Remember in 1963 only the man was working, and typically supported 4 kids
> This is a ridiculous exaggeration: the average US household was 3.7 people
The avg figure in your rebuttal doesn't well reflect the commonality of large US households in the 20th century nor their change during that time.
According to US Census data, the % of US families with 4 or more children fell 10fold during 20th century.
Early 1900s: About 35%
Early 1910s: About 26%
Early 1920s: About 23%
Early 1930s: About 19%
Early 1940s: About 18%
Early 1950s: About 21%
Early 1960s: About 21%
Early 1970s: About 10%
Early 1980s: About 5%
Early 1990s: About 3%
Early 2000s: About 3%
Early 2010s: About 3%
This, and also the myth that only the men used to work and provide for the needs of their family: while is was true in the growing middle class it wasn't the case in the popular class at all.
> There are good reasons to hold politicians to task for recent abnormally high inflation.
Well, maybe 25% for the budget deficits. The Fed is responsible for 75%. They keep over-goosing the economy. They keep saturating the money supply. That devaluing is what inflation reflects. That is your money is worth less (and appears like prices going up).
You can listen to Bing Crosby's Christmas album, to the song "It's Beginning to Look a Lot Like Christmas", where the parents having 4 children (household size thus 6) is described, as an anecdotal supporting note... since it was a popular song for the masses, 4 kids was not seen as unusual.
> Today Palo Alto, Menlo Park, and other super zips are exclusively [A slight exaggeration] $500k incomes and up. In the 1960 census records you will find these good neighborhoods occupied with plumbers, painters and other blue collar workers.
This was unfortunately a deliberate consequence of the dot com boom, not something that happened in previous tech booms. Until around 2000 Palo Alto actually had a lower median income than some surrounding towns due to a policy of promoting section 8 housing, some SRO residences for the homeless etc. Those prior booms didn't suck in as many outsiders and mostly were nerds making fun tech (think of the mac). NYT amusingly published an article were they said how weird the SV was because people who drove mercedes cars still shopped at Costco rather than at "proper" shops appropriate to their "station".
Dot com sucked in a bunch of people who came only for the money ("I'm starting a company -- need a tech cofounder" is the complete opposite of those days when it was "I'm starting a company -- we're big enough that we need some business people"). Then we started to have fancy restaurants and pretentiously-named magazines about how to spend your money.
And then in 2000 the real estate people got control of the city council. The SROs were turned into boutique hotels and the city was re-organzied for the lucky.
PA used to be a town where the Grateful Dead, Jefferson Airplane, and the like got started. Harold and Maude was (partially) filmed here. But such things are now inconceivable.
Although what goes up can come down... if some other state or region within California permitted large amounts of construction, enabled businesses to move in, and threw a few hundred million at building a great university, property values here would drop a lot.
With less intention and planning it will take longer, but could still happen, and there are some natural pressures pushing things in that direction.
>PA used to be a town where the Grateful Dead, Jefferson Airplane, and the like got started. Harold and Maude was (partially) filmed here. But such things are now inconceivable.
I remember how in the 80's and 90's there were still movies like Mrs. Doubtfire with characters on minimum wage renting in downtown San Francisco lol
It took off when they lowered the interest rates after the dot com crash. The issue was the too low for too long interest rates that drove the increase in home ownership (and rents).
> In other words you had 1 man working 50 hours a week afford a house...
With inflation, we want to know about the change in value of the dollar only. We don't want to factor in the change in value of houses, food, etc. There is a place for understanding that too, but inflation is not it. Something like a cost of living index is more suitable to that kind of information.
On that note, houses are unquestionably more valuable today. For one, they are twice the size they were 60 years ago. We can all agree that a bigger house has more value than a small house, at least within reason. You can fit more in it, it is more comfortable, etc. and that is valuable. They are also a lot safer. That too is more valuable.
As such, a housing costing x% more today than as compared to some time in the past does not mean that inflation is x%. Again, we only want to know about how the dollar changed in value, not housing. Of course, if you only have numbers, it is impossible to know what share is due to housing being more valuable and what share is the dollar being less valuable, although we can say with great certainty that it is some combination of both.
CPI tries to tess out what is the dollar portion only by looking at a large basket of goods of things people buy frequently. Where you see common moment in the change in price across all items in the basket, that is assumed to be the change in value of the dollar. It's not perfect. There is no perfect metric. You are quite right that one should look at many different models, even though none of them will be perfect either. It is all good information, none of it great, but at some point you have to pick a single number.
They also have better insulation and construction, they’re all wired for electricity and plumbing, they all have advanced HVAC. Fancier kitchens with more plumbing, appliances and nicer materials. People have access to more furniture and fixtures and appliances to fill more home - no one needed laundry rooms before a washer/drier was invented. Few had garages. Don’t let survivorship bias fool you - the 1950s homes that working class families had were not that nice.
The homes today cost more because more goes into them. We could all live in stuck huts we made ourself like in 1750 and everyone could afford two houses in 2024. Instead, housing has gone up because the utility of that housing has gone up.
Oh and of course we’re not making nearly as many per-capita as we used to. So the scarcity is going up.
> With inflation, we want to know about the change in value of the dollar only.
By "we", you are referring to you and others who want to know only this.
Some people (not many) want to know what is going on comprehensively, and in fact. For example: I would like to know if there is any strategic changing of formulas to improve appearances going on, like there has been at pretty much every single job I have ever worked on.
But to be fair, this is a subjective personal preference, and an unusual one at that. Most people prefer simplistic, memetic representations of reality (though, few can agree on which memes).
>On that note, houses are unquestionably more valuable today. For one, they are twice the size they were 60 years ago. We can all agree that a bigger house has more value than a small house, at least within reason. You can fit more in it, it is more comfortable, etc. and that is valuable. They are also a lot safer. That too is more valuable.
Keep in mind, demand was higher with the baby boom than it is today. Houses also used to be built to much higher specifications. Old houses were made with tons of premium timber that is still valuable even 50+ years later.
>On that note, houses are unquestionably more valuable today.
No. They are better, not necessarily more valuable.
Simple example:
Today you can get a phone with a chip more powerful than the best supercomputers 50 years ago. Is today's chip more valuable (ie. price-value) than that supercomputer? No. An equivalent supercomputer back then would cost WAY more. You're bringing other variables into play and confusing things. Technology has improved, manufacturing costs have gone WAY down for higher quality products. The fact that we can get higher quality things nowadays has little to do with purchasing power and everything to do with science and technology. The fact we can afford a better quality house nowadays, is also much more related to material improvements, manufacturing, logistics, overall system efficiency (transportation, company competition,...) improvements than purchasing power.
What we can compare is what other poster's are doing: time vs functions. For example, working time needed to have an average place to live in by the time's standards. And if you do that, you'll see today it requires A LOT more working time.
Others have pointed out the flaws in the rest of this, but the labor force participation rate of Women[1] was around 33% in 1950, 38% in 1963, and 60% in 2000; it's 57% now. That's a huge change, but 1963 is a far cry from 0%. See also men[2].
Also look at the prime-age participation rates (https://fred.stlouisfed.org/graph/?g=1k7Vy), which help control for demographic changes over the decades. The 1963 prime-age LFPRs were 44/99% for women/men respectively, and today those figures are 77/89%.
There are 153 million more people in the U.S. today than in 1963.
The reason these neighborhoods are exclusive to the wealthy is that housing there is scarce despite growing demand due to job growth. Housing in places like the Bay Area is such a big portion of monthly expenses that stuff like Arby's 4 for $10 or whatever isn't whats hurting people the most.
Lots of these issues just come down to housing and restrictive zoning.
>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.
Artificial labor scarcity is a good thing, to keep wealth in the hands of labor instead of capitalists. But it needs to be equitably distributed (more households working fewer hours each).
> Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home.
Things are a lot cheaper if you keep them in a 1200 square foot house
> 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.
Highly doubt people at this income rank were buying houses in 1960 and living comfortably.
> Summers is right more than he’s wrong
Entire argument is whether you should count interest or not. I can see arguments both ways
You're right, but it doesn't account for the entire loss in prosperity.
Prosperity was also growing 1880-1960 at at even faster rate, but inflation was much flatter.
We went from scarse food, horses, no telecomms, no planes, almost-no electricity, moderate running water to nearly modern conditions 1880-1960 with minimal inflation
> True inflation would measure the amount of prosperity achieved per hour worked.
I think this isn't a measure of inflation per se, because productivity changes are big over the decades. But I do think looking at costs in terms of hours of work is really helpful.
I think back to an event in some HS extracurricular when a group of students got to ask questions of a gubernatorial candidate, and one kid asked if he was going to do anything to make college more affordable at state schools, and this candidate (perhaps keenly aware that almost none of the students could vote) basically laughed it off and talked about working at restaurants to put himself through school (I think in the 70s). How many hours of (unskilled?) labor was a semester of tuition then, versus 30 years later? How many hours was a tankful of gas, or rent for half an apartment, or a heating bill? How feasible is it really to work one's way through even a public school?
I agree with the point about the cost of education.
In real terms, however, the cost of a tank of gas is about what it was in the 1960s[1]. Today's average is $3.63[2], which is about $0.34 in 1960 dollars.
Yes -- the whole thing should be how many hours it takes to buy X instead of how many dollars.
It's then interesting to see how that looks in different economic brackets. Maybe in one bracket a car costs 1000 hours, and in another the same car costs 350 hours (so might as well get a 700 hour car. Still cheaper).
As a counter point, this post by Matthew Yglesias might be interesting. Basically makes the case that the standard of living today is significantly higher than back then, and we wouldn’t be okay living today like we did back then.
I randomly ran across this blog post https://economistwritingeveryday.com/2024/04/10/grocery-infl... today. It says fast food prices have gone up faster than grocery prices or inflation. I don't eat fast food so I don't know if it's true. But it got me thinking.
Maybe the likes of Doordash are to blame, at least indirectly. Food delivery companies have proved that people will pay $15 for a lukewarm McDonald's burger if it's brought to their doorstep. So there is obviously some room to increase prices even for in-store purchases.
You're right a lot of unhealthy habits increased during covid, including alcohol, junk food binging, marijuana/ vaping, anti-social behavior -- which led to greater inflation in unhealthy products and healthcare.
> 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.
How much is this related to inflation compared to the complete refusal of the Silicon Valley suburbs to building new housing? If rich people want to move somewhere, and people living in that area dont build houses for them to move into, its going to drive the prices up, because the wealthy people will go there no matter what.
Also your whole bit about the past being so much better is insane. Hard to tell what is you exaggerating and what is a serious argument. My partner and I make ~100k + 40k combined a year, and we rent an apartment in one of the nicest SF neighborhoods, save for retirement, go out and do (paid) things every weekend, and still save a good chunk of money every month. We also have gym memberships, own cars, buy nice groceries, etc.
Inflation does suck, and the sticker shock is bad, but the high inflation also stems from policies that have let us have insanely good unemployment levels. Post 2008 we saw less inflation, but unemployment stayed high for almost a decade. Unemployment is already down to super low levels post 2020, which is better for everyone. Average and lower wage workers have also seen large growths in what they make.
>It’s a deliberate approach to stealing your prosperity while you cheer it on.
Excellent way to put it.
To put things in perspective if one works for 5 days a week, you are paying the govt (all taxes + inflation) about 3 days of your earnings. You only get to keep what you earn for 2 days.
This is easy: how much did an acre of land in Palo Alto cost then, and how much does it cost now? Why? Why does the price of land “need” to go up? It pays no wages, no rent, no suppliers, no anything. It’s just there being land, no matter what price it is. So why has its price gone up and who benefits from that?
This is an interesting take and it got me thinking. The replacement rate in the US is not 4. In fact, I would imagine that 4 is probably unsustainable. I like to see money more as a chemical gradient a la chemotaxis, though more clever people than I call it a carrot. With inflation the carrot is being removed, perhaps even being used as a stick. A superfluity of resources without controls of some sort may well lead to runaway growth, and I presume with the relative expenses of everything that there is an unsustainable imbalance at the fundamental level excess demand for intrinsically limited supply.
Of course the inflation model is applicable outside of the purely monetary. The more people you have the larger the labor army, and with each number added to that the less valuable the individual becomes even in terms of highly specialized labor, because ostensibly this can essentially be predicted with a distribution and with the way people are commoditized in most positions and companies these day, excellence is neither expected, sought for, nor wanted. This is still within the realms of the economists wheelhouse.
I would argue there's a third inflation, social inflation, as well. And this essentially hinges on the same principal that the labor army does: more people, less individual value (“a single death is a tragedy, a million deaths are a statistic”). And I would posit that the decrements have been seriously exacerbated in this realm by social media, television, celebrity, and so forth. I would also point out that the civil rights movement and women's lib has also (rightly) had a profound effect on social orientation that has yet to fully manifest itself.
If I recall correctly many developed nations have declining "native" populations. I'm unsure of the causal factors, but I wouldn't be surprised if it was in some ways an instinctual aversion to these sorts scaling laws. If I'm not mistaken Dunbar's number is roughly adhered to in nature, so it makes sense that there is somewhat of a drive to limit pack/civilizations size.
- 2 fare increases in the first 60 years of operation.
- 17 fare increases in the next 60 years.
Note that even with the fare increases in the last 60 years, once adjusted for inflation, the cost of MTA fares were actually going down until 1984 or 40 years or so, when fares really exploded [2]
All of this is very tricky stuff, I would just call it shades of grey and leave it at that, no black and white.
Similar lore happened in the DC metro, everything was fine until it got to be XX years old and then they jacked up the prices and starting shutting things down all the time -- because the infrastucture was all getting dangerously old (subway fires and such) and so they had to quasi-build-new infrastucture, so that got a guy that basically said "we're gonna fix it and it will be painful but we will still fix it"
for example - https://thehill.com/policy/transportation/291651-dc-metro-ex...
The crux of it is, it's generally easy to maintain a pretty new system than an aging one (bathtub curve type scenario like in the hard drives). As such we see China sitting real pretty presently but say 50 years from now it will inevitably be a different tune.
Now in the case of NYC I wouldn't be surprised if some of that had to do with crumbling, very very old infrastructure, and I wouldn't deny either by the same token it had to do with macro-economic factors as well, all shades of grey. First 60 years of operation NYC probably had a lot of "brand new" stuff at any given time.
> 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.
Is that really true, or is it more a feeling many Americans have? As a Swede it’s a bit hard to relate to.
Crime is much much lower than it was decades ago almost everywhere in the US.
Also “run down” in reference to cities is just not true outside of a few failed areas like Detroit. NYC today is dramatically nicer than it was decades 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?
I would gladly trade WFH to be the one person supporting a family of 6. (Me, partner, two kids, two grandparents.)
The Internet's great and all (although sometimes it seems like it was a mistake), but we're so far from 1 very average person being able to support a middle class life style for 6 people.
Median income in 1960 was $5,600, which is equivalent to $60,000 today, but according to the EPI*, to provide for a family of 6, I'd need to make about $150k/yr to live in Cincinnati, Ohio (in SF it's $280k). Which isn't a lot in the FAANG world, but the point is that a very average not-very-smart person was able to provide for that many people back then.
How many very average not-very-smart unskilled people do you know make $150k/yr; how many smart people do you know that make less than that?
The main thing is, that I could actually support a household of 6 people on a single income if I was allowed to fix the comfort at the 60s level.
1. No flying on vacation and only simple camping as vacation
2. No technology: Computers, phone, television. Nothing, and no associated costs with subscriptions, etc.
3. Eat like it was the 60s, mainly potatoes (I am from Northern Europe).
That said: I truly believe in the parent commenters key idea. We need to create more real prosperity for people. But in order to do that, we need to adjust the activities – Marketing and expensive dead-end projects (read: projects that occupy a lot of person-hours) does not achieve real prosperity.
Some aspects have improved, and others have declined.
Home entertainment has more options, we spend more time at the TV and computer.
Other aspects of life have declined.
It's challenging because there are qualitative and aesthetic aspects to the process, so it takes some discussion to come up with a good understanding.
Regardless CPI is misleading. The amount of time spent working over a lifetime to support the family and cover taxes has grown significantly, at a higher rate than CPI suggests.
The opulent space per inhabitant (as families are also smaller) is now viewed by many as a negative in face of the climate crisis, not to mention the cost of housing and the resulting need to work more.
I also have like six different machines in my house that would each, single-handedly, put the entire computing infrastructure of the Apollo program to shame. And my corneas have been reshaped into the ideal form by a computer-controlled laser, giving me 20/10 vision. I haven’t done it yet, but I could get my entire genome sequenced. A $20 Italian rifle sounds like a good deal but today you can buy a machine that literally prints guns (some assembly required). Any one of these things would be worth millions if not billions of dollars in the 1960’s.
This also explains why Palo Alto is so much more expensive these days. Some the things I mentioned were invented around there, which made a lot of those people rich.
Other things have become more affordable too. In 1960, a round trip flight from New York to London cost $550. I can find similar fares right now. In 1984, a Macintosh cost $2500, had 128 KB of RAM and a 9 inch 512 by 342 pixel display. For half as many dollars today, you can buy an iMac with a 24 inch 4.5K display and 8 GB of RAM.
Now, I will admit that many things are needlessly more expensive, and while the reasons for this are complicated, I don’t think it’s any coincidence that many of these cost increases are directly associated with institutions getting taken over by parasitic classes of administrators and bureaucrats. If you go to college, you’re not just paying for the inherent costs of the college; you’re also paying for the growing administrative bureaucracy that has infested the institution. If you go to the doctor, you’re not just paying your local family doctor; you’re paying an entire bureaucracy that has reduced your family doctor—who used to own a private practice—to the status of a corporate employee, plus a completely separate “health insurance” bureaucracy. (It turned out that the doctor who reshaped my corneas with lasers was happy to just take cash though!)
Governments are some of the worst effected. The cost to build the US interstate highway system was, adjusted for inflation, about 618 billion dollars. The 2021 infrastructure bill totaled 1.2 trillion dollars, but are we really getting the equivalent of two complete interstate highway systems? But hey, it could be worse—it’s not like they actually collected all the tax dollars they needed to pay for it! That’s a problem for future America. I don’t envy those guys!
The extremely short summary of where all that prosperity went: up and abroad. The capitalist class hollowed out the middle income USA by siphoning solid jobs off abroad and pocketing the difference. You can thank all the neolib useful idiots for that. It is not really the result of interest rates.
I agree with this: inflation as an economic measure is an intentional policy tool to transfer wealth from the poor to the wealthy.
In the last few months we've seen headlines about inflation "levelling off" but that just means prices aren't growing as fast. The 20-30% increases in housing in particular aren't going down. In fact, it's intentional government policy to make sure house prices and rents never go down.
You mention Silicon Valley and others dismiss this as a result of the dot com bubble but it's really not. It's zoning policy. IIRC the smallest lot in Menlo Park or Mountain View is ~10,000 square feet.
But you see it elsewhere. The average house price in London is ~706k GBP. 30 years ago it was ~70k.
Inflation is used to justify wage suppression. Whatever the formula, it doesn't accurately reflect to cost-of-living crisis we're in.
Comparing Palo Alto circa 1960 to Palo Alto circa 2020 is frankly bizarre. But if we’re using that logic why stop at 1960? Coulda had that land for almost nothing in 1700, so there was infinite inflation from 1700 to 1960! Gasp!
But what’s the result if we look at the price of a compute that a 1960 worker could buy vs a 2020 person? Let’s see a modern household has the equivalent to a very large number of 1960 mainframe computers, looks like their buying power has gone up infinitely!
Or lots in prime La neighborhoods, super affordable in 1860! That means people have lost so much purchasing power because they’re hard to afford now!
> so there was infinite inflation from 1700 to 1960
Infinite is exaggerating but the US dollar has lost >95.0% of its value since the 1700s. So that observation is technically wrong but intuitively is fairly reasonable. If you assumed infinite inflation since then you'd be accurate enough for casual conversation.
> Take 1963 as an Example. Sears sold entire two story home kits with all materials for $1600.
How big (area-wise) were those houses? What kind of heating did they have? How air-tight/leaky/drafty were they (which would dictate OpEx on heating)? Did they have air conditioning? What kind of electrical service could they handle (60A? 100A? 200A?)? Did that include the foundations/footings/slab? Were those parts insulated (i.e., how cold were your feet)? Did they come with sprinklers or even smoke/fire alarms?
> And you weren’t getting an HGTV-approved home in the 1950s. Those cheap homes everyone was buying were 700-900 square feet with two to three bedrooms and one bathroom. Most had no basement, porch or back deck. You were lucky if you got a one-stall garage.
> No open floor plans, granite countertops, stainless steel appliances, walk-in closets, man caves or room to entertain. Most homes were bare bones.
I'm not sure how many folks would like to live in a current $1600-equivalent house.
> 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.
If you think inflation is bad, try deflation (1930s).
> 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.
The pre-1983 algorithms were moved away from for a reason: do you know that reason? Was it a good or bad reason(s)? Why?
> In 1983, the government switched from using home prices — which also included mortgage payments and maintenance costs — to using rental prices to gauge the cost of housing.
> The cost of housing for people who own their property is now measured using what is called “owners’ equivalent rent”: how much their house would cost to rent if they did not own it.
> The idea is that homes are an investment. House prices appreciate, and you may eventually sell for a profit a property that you have purchased. Rent, however, represents consumption. It does not leave you with an asset that you can sell down the road.
> Critics often argue that by leaving home prices out of the equation, the inflation metric underestimates the cost of living at moments when home prices are increasing markedly and when it costs first-time buyers more to get a foothold in the market. Some even claim that if the government used the old methodology, its reported inflation rate would be much higher today than it was during the 1980s.
Housing prices are not considered in the CPI ("cost of living") because they are mostly an asset:
> House prices are an interesting case. Houses are considered capital investment by the [US] BLS. So, when the value of your home increases that's a good thing as you didn't consume the house. In other words, you don't need to replace the house. Consumption goods are different in that you need to replace the thing you bought. Inflation is very bad for consumption goods because it costs you more to replace that thing each time you need it (food, for instance).
> The BLS views housing as a mostly “investment” item as opposed to a consumption item. So, for instance, when you consume a hot dog and have to replace it then the cost of replacement is a direct reflection on your well-being. A $1 hot dog that costs $2 one year later is a material change in living standards, all else equal, since the hot dog is an asset that you literally consume. A house is much more complex. [...]
> Of course, anyone who owns a house knows that it’s not that simple. You do basically consume your house over time. For instance, my home has appreciated substantially since I purchased it just 5 years ago and underwent a hellish remodel. At that time the cost of replacement was roughly $300 per square foot. But in the ensuing years the cost of replacement has increased to $400 per square foot. As my physical home falls apart over the years I will need to replace it. But the key point is that, as I replace these components the housing market is likely to revalue the total home value to account for this investment. So even though I am consuming my house over time I am very likely to recoup those costs.
Upkeep is a part of the CPI (as is Rent, under the broader Shelter category), but house/land prices are not. The "C" in CPI stands for consumer. Housing assets aren't in the CPI for the same reasons stocks and bonds are not: we don't consume them to live.
'Shelter' is considered in the CPI generally though (and with-in that things like home repair (lumber, plumbing) are accounted for); for Canada:
And as the Bank of Canada notes, there is no internationally agreed upon method:
> International statistical agencies have unanimously adopted the net acquisition approach for durables, but there is no consensus about the best approach to the treatment of OA in the CPI16 (Table 1). Rental equivalence is the most popular approach among countries belonging to the Organisation for Economic Co- operation and Development.17 Johnson’s (2015) recent review of the U.K. CPI proposes using CPIH, which includes the costs of OA and is based on a rental- equivalence approach, as the U.K.’s main measure of inflation. Several countries in the European Union have refrained from incorporating OA into their CPI, although Eurostat is currently conducting a pilot study for the euro area based on the net acquisition approach. Australia and New Zealand use a net acquisition approach, while Sweden and Finland—like Canada—are using a partial user-cost approach. No country has adopted a full-fledged user-cost approach.
> Remember in 1963 only the man was working, and typically supported 4 kids, a wife and often parents in the home.
They used older kids to watch younger kids, and generally let the kids fend more for themselves (my boomer dad was the oldest of 8 kids, and that was his experience, but having his grandparents die of spanish flu after WW2 hurt and helped a bit). I actually kind of admire that, and think we've lost something with more hands on parenting.
I totally agree. In a sense, FAANG salaries aren't especially high by historical standards, it is just that everyone else has fallen so far behind. $500k/year household income is firmly middle class, and is like earning $135k in 1980, my dad made more than that contracting in building nuclear plants with an associates degree from Spokane Community College.
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.
> "The only way seems to be interest rates on personal loans and mortgages."
Yes, exactly.
As noted in the article and the underlying study, 80% of car purchases are done via a loan and financing is not part of the inflation measure. When you look at buying a home, most are also done via loans and still financing is not part of the measure. In both cases, interest rates are a factor in affordability and cost.
> Blindly stacking interest rates on top of CPI doesn't really make sense
Well then it's good that's not what they're doing.
> interest rates are a factor in affordability and cost
Paradoxically over a long term, interest rates don't affect house affordability much.
People bid on houses at the limit of what they can spend - the constraint is their income not the interest rate.
As interest rates fall, people pay the same interest payments but bid higher on the house price (driving house prices up). As interest rates rise, people spend the same amount monthly (on interest payments) but borrow less in total and can bid less on houses.
It is a steady-state argument, so other things do matter (income changes, mortgage qualification rules, immigration into the area, dynamic effects of interest rate changes). Rent has other factors but the constraint of income has parallel effects.
I don't buy this is reasonable for home purchases. They already factor imputed rent in CPI; you'd have to somehow do some sort of complex weighing of own vs rent to factor mortgages (complex since it only affects new purchases given most folks are on fixed rate mortgages)
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).
> So if anything, we should only include interest rates in proportion to how many people are taking out major loans during the sampled period
Is that right? What about people that didn't buy a home in 2023 because interest rates were high (i.e. they the impact of high interest rates was so large that they _wouldn't appear_ in your weighting because they were pushed out of the market)?
Mortgages aren't some small detail distorting the numbers. They make the difference between being able to afford a house or not. Having to live with your parents vs being able to buy a house and start a family of your own.
I was lucky to buy a house 10 years ago, and got a 3.5% fixed rate mortgage. Today the house value has gone up by 50%, and mortgage rates are about double at 7%. Just due to the mortgage increase alone, someone buying this house today would have a monthly payment about double what I am paying. I would not be able to afford it. On top of the mortgage rate increase, there's also that 50% inflation in the value of the house, meaning that if it sold today the new buyer (assuming they financed it) would be paying closer to triple (150% x 200%) what I am.
> The only way seems to be interest rates on personal loans and mortgages.
Most interest rates across the economy are set in relation to a benchmark rate, which loosely follow the Fed rate. E.g. the US prime rate.
This effects essentially all credit that isn't fixed rate, which is a huge portion.
How this effects you -- the price of credit that businesses use to function, which essentially every business uses, ultimately shows up in the cost of goods.
> So if anything, we should only include interest rates in proportion to how many people are taking out major loans during the sampled period
It goes both ways: in that case, we should also discount from CPI calculation the effect of sub-3% mortgages, low/zero interest auto loans, forgiven fraudulent PPP loans, etc.
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.
To me it makes sense to include interest rates, because even if a person doesn't have any loans (or get new ones), they pay current rates on the cost of loans, because businesses do have loans and they pass the costs through.
> we should only include interest rates in proportion to how many people are taking out major loans during the sampled period
The price of beef went up. A lot. As a result, quite a lot of people stopped eating beef. Should we remove the beef from the CPI basket?
Similarly, the mortgage rates skyrocketed, and the number of home purchases plummeted. But many more people would buy a home, if only they could afford it. Just like more people would start eating beef again, if they could afford it.
>How do interest rates effect everyday people exactly, other than price inflation on goods and services (which is included separately in CPI)?
We artificially made interest rates low (look up open market operations). Low rates make risky ventures more financially attractive by making the DCF denominator smaller. People look to invest in growth instead of reliable revenue. That is, "bet on the future" becomes dramatically more attractive than "goods and services being made now". Additionally, it devalues wages and increases the value of financial assets. It's literally "rich get richer: the policy".
Anyone who is upset about NFTs millionares existing while EMS workers and teachers struggle, or upset about billionaires' staggering wealth inequality, or fraudulent do-nothing scam businesses like WeWork and Theranos, obviously stupid ventures like Juicero, or basically any economic upside-downness that most laypeople have recently come to blame on "capitalism" need look no further than LIRP and ZIRP. We snapped all the fingers of the invisible hand, but did it far upstream of anything that average people pay attention to. Anyone who wasn't paid in equity got fucking robbed over the last 20 years.
I don't really agree that interest should be included in CPI, but I do agree that CPI (and PCE) is an absolute joke that doesn't measure what it claims to.
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.
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...
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.
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-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.
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.
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.
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.
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.
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.
>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.
Nothing you said has anything to do with the article and its proposal to incorporate interest rates into inflation. Maybe it's your type of post that should be considered polution.
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.
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.
The "free press" is reporting BLS data. And BLS produces a CPI number based on a formula to act as an indicator, not an absolute measure. People tend to react to things they buy frequently which also happen to be the most volatile (food and fuel) and react less to things they actually spend most of their money on (shelter and transportation). CPI is a broad indicator and will never match the lived experiences of 350M individuals. Inflation can vary widely across a lot of dimensions including geography. Absolutely all of this data is available from the BLS. They only put CPI in headlines because it is meant to convey broad national trends in a bite-sized data point.
>People tend to react to things they buy frequently which also happen to be the most volatile (food and fuel) and react less to things they actually spend most of their money on (shelter and transportation).
Are you suggesting housing prices haven't gone up similar to food prices? Because they have. House prices in many places went up 50% in the last few years and never went back down. People aren't imagining this inflation. It isn't 3%, that's for damn sure. It's at least 10% right now, and probably hit as high as 20% during the pandemic.
> 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.
You do know that the CPI (and CPE) are made up of components, right? Like Shelter, Energy, Transportation… Food.
Food can go up more that 3.5% while other items (like Transportation/Energy/Oil) go down, so on average the prices you see have gone up by 3.5%. The individual components may be more (or less) than the 3.5% average.
Further, the CPI is an average basket of goods and services (taken from spending surveys done by many people), which may or may not correspond to what you personally put in your own basket. In Canada, StatCan has a Personal Inflation Calculator where you can enter budget as see your personal inflation rate which may be different than the headline inflation rate:
We’re at a point where my bigtech six figure circles are starting to notice and switch to chicken. But by all means do please continue to deny reality. Because by the looks of it we’re headed into a Carter style stagflation for the next 15 years.
Did you read the article at all? Unless you were buying meat with personal loans the issue of whether or not interest expenses should be included in CPI has no relevance to correct measurement of food inflation.
"Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that.""
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.
Readit News
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.
This is a ridiculous exaggeration: the average US household was 3.7 people in the 1960s, not over 6[1].
There are good reasons to hold politicians to task for recent abnormally high inflation. But this comment is more of an atavistic fever dream of the past than an expression of those reasons.
Edit: another source puts it at 3.3[2].
[1]: https://www.statista.com/statistics/183657/average-size-of-a...
[2]: https://www.statista.com/statistics/183648/average-size-of-h...
I would rather disagree with GP's:
> 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.
A lot of the inflation, including how suddenly a single-income household isn't a viable option for most people in the West, is market working as intended - quickly consuming any surplus money, should it suddenly become greater than 0 on average, and slowly eating into any value that isn't bare-minimum strictly necessary to move a product.
> This is a ridiculous exaggeration: the average US household was 3.7 people
The avg figure in your rebuttal doesn't well reflect the commonality of large US households in the 20th century nor their change during that time.
According to US Census data, the % of US families with 4 or more children fell 10fold during 20th century.
Multiple refs inc: https://files.eric.ed.gov/fulltext/ED231528.pdfWell, maybe 25% for the budget deficits. The Fed is responsible for 75%. They keep over-goosing the economy. They keep saturating the money supply. That devaluing is what inflation reflects. That is your money is worth less (and appears like prices going up).
This was unfortunately a deliberate consequence of the dot com boom, not something that happened in previous tech booms. Until around 2000 Palo Alto actually had a lower median income than some surrounding towns due to a policy of promoting section 8 housing, some SRO residences for the homeless etc. Those prior booms didn't suck in as many outsiders and mostly were nerds making fun tech (think of the mac). NYT amusingly published an article were they said how weird the SV was because people who drove mercedes cars still shopped at Costco rather than at "proper" shops appropriate to their "station".
Dot com sucked in a bunch of people who came only for the money ("I'm starting a company -- need a tech cofounder" is the complete opposite of those days when it was "I'm starting a company -- we're big enough that we need some business people"). Then we started to have fancy restaurants and pretentiously-named magazines about how to spend your money.
And then in 2000 the real estate people got control of the city council. The SROs were turned into boutique hotels and the city was re-organzied for the lucky.
PA used to be a town where the Grateful Dead, Jefferson Airplane, and the like got started. Harold and Maude was (partially) filmed here. But such things are now inconceivable.
With less intention and planning it will take longer, but could still happen, and there are some natural pressures pushing things in that direction.
I remember how in the 80's and 90's there were still movies like Mrs. Doubtfire with characters on minimum wage renting in downtown San Francisco lol
With inflation, we want to know about the change in value of the dollar only. We don't want to factor in the change in value of houses, food, etc. There is a place for understanding that too, but inflation is not it. Something like a cost of living index is more suitable to that kind of information.
On that note, houses are unquestionably more valuable today. For one, they are twice the size they were 60 years ago. We can all agree that a bigger house has more value than a small house, at least within reason. You can fit more in it, it is more comfortable, etc. and that is valuable. They are also a lot safer. That too is more valuable.
As such, a housing costing x% more today than as compared to some time in the past does not mean that inflation is x%. Again, we only want to know about how the dollar changed in value, not housing. Of course, if you only have numbers, it is impossible to know what share is due to housing being more valuable and what share is the dollar being less valuable, although we can say with great certainty that it is some combination of both.
CPI tries to tess out what is the dollar portion only by looking at a large basket of goods of things people buy frequently. Where you see common moment in the change in price across all items in the basket, that is assumed to be the change in value of the dollar. It's not perfect. There is no perfect metric. You are quite right that one should look at many different models, even though none of them will be perfect either. It is all good information, none of it great, but at some point you have to pick a single number.
On average, it will be close enough.
They also have better insulation and construction, they’re all wired for electricity and plumbing, they all have advanced HVAC. Fancier kitchens with more plumbing, appliances and nicer materials. People have access to more furniture and fixtures and appliances to fill more home - no one needed laundry rooms before a washer/drier was invented. Few had garages. Don’t let survivorship bias fool you - the 1950s homes that working class families had were not that nice.
The homes today cost more because more goes into them. We could all live in stuck huts we made ourself like in 1750 and everyone could afford two houses in 2024. Instead, housing has gone up because the utility of that housing has gone up.
Oh and of course we’re not making nearly as many per-capita as we used to. So the scarcity is going up.
We need a concept for debasement / hidden tax that allows people to hold their policymakers accountable.
My point is that CPI isn't it, it underestimates true inflation by 3-5x or more , and it interferes with good governance.
If the govt wants money from the people, they need to tax them and be held accountable for the policy
By "we", you are referring to you and others who want to know only this.
Some people (not many) want to know what is going on comprehensively, and in fact. For example: I would like to know if there is any strategic changing of formulas to improve appearances going on, like there has been at pretty much every single job I have ever worked on.
But to be fair, this is a subjective personal preference, and an unusual one at that. Most people prefer simplistic, memetic representations of reality (though, few can agree on which memes).
Keep in mind, demand was higher with the baby boom than it is today. Houses also used to be built to much higher specifications. Old houses were made with tons of premium timber that is still valuable even 50+ years later.
No. They are better, not necessarily more valuable.
Simple example:
Today you can get a phone with a chip more powerful than the best supercomputers 50 years ago. Is today's chip more valuable (ie. price-value) than that supercomputer? No. An equivalent supercomputer back then would cost WAY more. You're bringing other variables into play and confusing things. Technology has improved, manufacturing costs have gone WAY down for higher quality products. The fact that we can get higher quality things nowadays has little to do with purchasing power and everything to do with science and technology. The fact we can afford a better quality house nowadays, is also much more related to material improvements, manufacturing, logistics, overall system efficiency (transportation, company competition,...) improvements than purchasing power.
What we can compare is what other poster's are doing: time vs functions. For example, working time needed to have an average place to live in by the time's standards. And if you do that, you'll see today it requires A LOT more working time.
Others have pointed out the flaws in the rest of this, but the labor force participation rate of Women[1] was around 33% in 1950, 38% in 1963, and 60% in 2000; it's 57% now. That's a huge change, but 1963 is a far cry from 0%. See also men[2].
As noted elsewhere, this ignores race. Compare white women under 20 <https://fred.stlouisfed.org/series/LNS11300029> to black women under 20 <https://fred.stlouisfed.org/series/LNS11300032>; dramatically different numbers.
Labor force participation rate isn't ideal, but it gives the picture.
1: <https://fred.stlouisfed.org/series/LNS11300002>
2: <https://fred.stlouisfed.org/series/LNS11300001>
The reason these neighborhoods are exclusive to the wealthy is that housing there is scarce despite growing demand due to job growth. Housing in places like the Bay Area is such a big portion of monthly expenses that stuff like Arby's 4 for $10 or whatever isn't whats hurting people the most.
Lots of these issues just come down to housing and restrictive zoning.
You address the supply side of the "housing crisis", what about demand?
"The thing I have noticed is when the anecdotes and the data disagree, the anecdotes are usually right. There's something wrong with the way you are measuring it". —Jeff Bezos <https://sports.yahoo.com/amazon-ceo-jeff-bezos-explains-2123...>
People think “data” is the conclusion, when in fact it’s just a signal to ask more questions.
1) the rest of the world was in ruins, so for 50s-60s US was sole industrial power more or less.
2) artificial labor “scarcity” where POC and women were banned from many occupations. The remaining available labor (ie white men) had more leverage.
A four day work-week would bring us at least a little bit closer to the 1950s situation, and improve the leverage of workers.
4 x 2 > 5, of course, but 4 x 2 is still less than 5 x 2.
Dead Comment
Things are a lot cheaper if you keep them in a 1200 square foot house
> 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.
Highly doubt people at this income rank were buying houses in 1960 and living comfortably.
> Summers is right more than he’s wrong
Entire argument is whether you should count interest or not. I can see arguments both ways
- People had only one car.
- People ate meat once per week.
- People had way fewer things in their houses.
You gotta consider increases in material possessions as well if you want to calculate inflation properly.
https://twitter.com/Outdoctrination/status/16948423262110437...
https://twitter.com/Outdoctrination/status/16948423228723817...
Prosperity was also growing 1880-1960 at at even faster rate, but inflation was much flatter.
We went from scarse food, horses, no telecomms, no planes, almost-no electricity, moderate running water to nearly modern conditions 1880-1960 with minimal inflation
I think this isn't a measure of inflation per se, because productivity changes are big over the decades. But I do think looking at costs in terms of hours of work is really helpful.
I think back to an event in some HS extracurricular when a group of students got to ask questions of a gubernatorial candidate, and one kid asked if he was going to do anything to make college more affordable at state schools, and this candidate (perhaps keenly aware that almost none of the students could vote) basically laughed it off and talked about working at restaurants to put himself through school (I think in the 70s). How many hours of (unskilled?) labor was a semester of tuition then, versus 30 years later? How many hours was a tankful of gas, or rent for half an apartment, or a heating bill? How feasible is it really to work one's way through even a public school?
In real terms, however, the cost of a tank of gas is about what it was in the 1960s[1]. Today's average is $3.63[2], which is about $0.34 in 1960 dollars.
[1]: https://www.creditdonkey.com/gas-price-history.html
It's then interesting to see how that looks in different economic brackets. Maybe in one bracket a car costs 1000 hours, and in another the same car costs 350 hours (so might as well get a 700 hour car. Still cheaper).
https://www.slowboring.com/p/nostalgia-economics-is-totally-...
And it doesn't account for qualities that have degraded. it assumes that since we have more possessions that life is better.
Maybe the likes of Doordash are to blame, at least indirectly. Food delivery companies have proved that people will pay $15 for a lukewarm McDonald's burger if it's brought to their doorstep. So there is obviously some room to increase prices even for in-store purchases.
Okay, it was the McDonald's hamburger that seems to have been $0.15 in 1963. That is $1.53 in CPI-inflated 2024 dollars.
The cost today is $2.19. That's about a 0.6% difference in the compounding inflation rate over 61 years.
How much is this related to inflation compared to the complete refusal of the Silicon Valley suburbs to building new housing? If rich people want to move somewhere, and people living in that area dont build houses for them to move into, its going to drive the prices up, because the wealthy people will go there no matter what.
Also your whole bit about the past being so much better is insane. Hard to tell what is you exaggerating and what is a serious argument. My partner and I make ~100k + 40k combined a year, and we rent an apartment in one of the nicest SF neighborhoods, save for retirement, go out and do (paid) things every weekend, and still save a good chunk of money every month. We also have gym memberships, own cars, buy nice groceries, etc.
Inflation does suck, and the sticker shock is bad, but the high inflation also stems from policies that have let us have insanely good unemployment levels. Post 2008 we saw less inflation, but unemployment stayed high for almost a decade. Unemployment is already down to super low levels post 2020, which is better for everyone. Average and lower wage workers have also seen large growths in what they make.
95% + of the recent employment rates have been part time employment.
U3 doesn't account for the historically low participation rate (about 60%)
Excellent way to put it.
To put things in perspective if one works for 5 days a week, you are paying the govt (all taxes + inflation) about 3 days of your earnings. You only get to keep what you earn for 2 days.
The average person today has a far higher standard of living than the average person in 1963.
Of course the inflation model is applicable outside of the purely monetary. The more people you have the larger the labor army, and with each number added to that the less valuable the individual becomes even in terms of highly specialized labor, because ostensibly this can essentially be predicted with a distribution and with the way people are commoditized in most positions and companies these day, excellence is neither expected, sought for, nor wanted. This is still within the realms of the economists wheelhouse.
I would argue there's a third inflation, social inflation, as well. And this essentially hinges on the same principal that the labor army does: more people, less individual value (“a single death is a tragedy, a million deaths are a statistic”). And I would posit that the decrements have been seriously exacerbated in this realm by social media, television, celebrity, and so forth. I would also point out that the civil rights movement and women's lib has also (rightly) had a profound effect on social orientation that has yet to fully manifest itself.
If I recall correctly many developed nations have declining "native" populations. I'm unsure of the causal factors, but I wouldn't be surprised if it was in some ways an instinctual aversion to these sorts scaling laws. If I'm not mistaken Dunbar's number is roughly adhered to in nature, so it makes sense that there is somewhat of a drive to limit pack/civilizations size.
Subway fares for NYC [1]
- 2 fare increases in the first 60 years of operation.
- 17 fare increases in the next 60 years.
Note that even with the fare increases in the last 60 years, once adjusted for inflation, the cost of MTA fares were actually going down until 1984 or 40 years or so, when fares really exploded [2]
[1] https://en.m.wikipedia.org/wiki/New_York_City_transit_fares
[2] https://old.reddit.com/r/nyc/comments/11u0s3z/nyc_subway_far...
The crux of it is, it's generally easy to maintain a pretty new system than an aging one (bathtub curve type scenario like in the hard drives). As such we see China sitting real pretty presently but say 50 years from now it will inevitably be a different tune.
Now in the case of NYC I wouldn't be surprised if some of that had to do with crumbling, very very old infrastructure, and I wouldn't deny either by the same token it had to do with macro-economic factors as well, all shades of grey. First 60 years of operation NYC probably had a lot of "brand new" stuff at any given time.
Is that really true, or is it more a feeling many Americans have? As a Swede it’s a bit hard to relate to.
Also “run down” in reference to cities is just not true outside of a few failed areas like Detroit. NYC today is dramatically nicer than it was decades ago.
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?
I would gladly trade WFH to be the one person supporting a family of 6. (Me, partner, two kids, two grandparents.)
The Internet's great and all (although sometimes it seems like it was a mistake), but we're so far from 1 very average person being able to support a middle class life style for 6 people.
Median income in 1960 was $5,600, which is equivalent to $60,000 today, but according to the EPI*, to provide for a family of 6, I'd need to make about $150k/yr to live in Cincinnati, Ohio (in SF it's $280k). Which isn't a lot in the FAANG world, but the point is that a very average not-very-smart person was able to provide for that many people back then.
How many very average not-very-smart unskilled people do you know make $150k/yr; how many smart people do you know that make less than that?
* https://www.epi.org/resources/budget/.
1. No flying on vacation and only simple camping as vacation 2. No technology: Computers, phone, television. Nothing, and no associated costs with subscriptions, etc. 3. Eat like it was the 60s, mainly potatoes (I am from Northern Europe).
That said: I truly believe in the parent commenters key idea. We need to create more real prosperity for people. But in order to do that, we need to adjust the activities – Marketing and expensive dead-end projects (read: projects that occupy a lot of person-hours) does not achieve real prosperity.
Home entertainment has more options, we spend more time at the TV and computer.
Other aspects of life have declined.
It's challenging because there are qualitative and aesthetic aspects to the process, so it takes some discussion to come up with a good understanding.
Regardless CPI is misleading. The amount of time spent working over a lifetime to support the family and cover taxes has grown significantly, at a higher rate than CPI suggests.
I don't think that the cost of a computer should silently get included into basics like rent for a roof over your head, food, and medical treatment.
It's the same house. They put drywall up in the basement and walls around the porch and call it a sun room.
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This also explains why Palo Alto is so much more expensive these days. Some the things I mentioned were invented around there, which made a lot of those people rich.
Other things have become more affordable too. In 1960, a round trip flight from New York to London cost $550. I can find similar fares right now. In 1984, a Macintosh cost $2500, had 128 KB of RAM and a 9 inch 512 by 342 pixel display. For half as many dollars today, you can buy an iMac with a 24 inch 4.5K display and 8 GB of RAM.
Now, I will admit that many things are needlessly more expensive, and while the reasons for this are complicated, I don’t think it’s any coincidence that many of these cost increases are directly associated with institutions getting taken over by parasitic classes of administrators and bureaucrats. If you go to college, you’re not just paying for the inherent costs of the college; you’re also paying for the growing administrative bureaucracy that has infested the institution. If you go to the doctor, you’re not just paying your local family doctor; you’re paying an entire bureaucracy that has reduced your family doctor—who used to own a private practice—to the status of a corporate employee, plus a completely separate “health insurance” bureaucracy. (It turned out that the doctor who reshaped my corneas with lasers was happy to just take cash though!)
Governments are some of the worst effected. The cost to build the US interstate highway system was, adjusted for inflation, about 618 billion dollars. The 2021 infrastructure bill totaled 1.2 trillion dollars, but are we really getting the equivalent of two complete interstate highway systems? But hey, it could be worse—it’s not like they actually collected all the tax dollars they needed to pay for it! That’s a problem for future America. I don’t envy those guys!
Hard to believe this example is worth it's weight in freedom units per capitalist product.
The reality is the economy and government were weaponized to enforce the lost of freedom to discriminate.
In the last few months we've seen headlines about inflation "levelling off" but that just means prices aren't growing as fast. The 20-30% increases in housing in particular aren't going down. In fact, it's intentional government policy to make sure house prices and rents never go down.
You mention Silicon Valley and others dismiss this as a result of the dot com bubble but it's really not. It's zoning policy. IIRC the smallest lot in Menlo Park or Mountain View is ~10,000 square feet.
But you see it elsewhere. The average house price in London is ~706k GBP. 30 years ago it was ~70k.
Inflation is used to justify wage suppression. Whatever the formula, it doesn't accurately reflect to cost-of-living crisis we're in.
Comparing Palo Alto circa 1960 to Palo Alto circa 2020 is frankly bizarre. But if we’re using that logic why stop at 1960? Coulda had that land for almost nothing in 1700, so there was infinite inflation from 1700 to 1960! Gasp!
But what’s the result if we look at the price of a compute that a 1960 worker could buy vs a 2020 person? Let’s see a modern household has the equivalent to a very large number of 1960 mainframe computers, looks like their buying power has gone up infinitely!
Or lots in prime La neighborhoods, super affordable in 1860! That means people have lost so much purchasing power because they’re hard to afford now!
Infinite is exaggerating but the US dollar has lost >95.0% of its value since the 1700s. So that observation is technically wrong but intuitively is fairly reasonable. If you assumed infinite inflation since then you'd be accurate enough for casual conversation.
How big (area-wise) were those houses? What kind of heating did they have? How air-tight/leaky/drafty were they (which would dictate OpEx on heating)? Did they have air conditioning? What kind of electrical service could they handle (60A? 100A? 200A?)? Did that include the foundations/footings/slab? Were those parts insulated (i.e., how cold were your feet)? Did they come with sprinklers or even smoke/fire alarms?
> And you weren’t getting an HGTV-approved home in the 1950s. Those cheap homes everyone was buying were 700-900 square feet with two to three bedrooms and one bathroom. Most had no basement, porch or back deck. You were lucky if you got a one-stall garage.
> No open floor plans, granite countertops, stainless steel appliances, walk-in closets, man caves or room to entertain. Most homes were bare bones.
* https://awealthofcommonsense.com/2024/01/americans-are-bette...
I'm not sure how many folks would like to live in a current $1600-equivalent house.
> 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.
If you think inflation is bad, try deflation (1930s).
> 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.
The pre-1983 algorithms were moved away from for a reason: do you know that reason? Was it a good or bad reason(s)? Why?
> In 1983, the government switched from using home prices — which also included mortgage payments and maintenance costs — to using rental prices to gauge the cost of housing.
> The cost of housing for people who own their property is now measured using what is called “owners’ equivalent rent”: how much their house would cost to rent if they did not own it.
> The idea is that homes are an investment. House prices appreciate, and you may eventually sell for a profit a property that you have purchased. Rent, however, represents consumption. It does not leave you with an asset that you can sell down the road.
> Critics often argue that by leaving home prices out of the equation, the inflation metric underestimates the cost of living at moments when home prices are increasing markedly and when it costs first-time buyers more to get a foothold in the market. Some even claim that if the government used the old methodology, its reported inflation rate would be much higher today than it was during the 1980s.
* https://archive.ph/zvtPw / https://www.nytimes.com/2022/05/24/technology/inflation-meas...
Housing prices are not considered in the CPI ("cost of living") because they are mostly an asset:
> House prices are an interesting case. Houses are considered capital investment by the [US] BLS. So, when the value of your home increases that's a good thing as you didn't consume the house. In other words, you don't need to replace the house. Consumption goods are different in that you need to replace the thing you bought. Inflation is very bad for consumption goods because it costs you more to replace that thing each time you need it (food, for instance).
* https://web.archive.org/web/20210929154549/https://www.pragc...
> The BLS views housing as a mostly “investment” item as opposed to a consumption item. So, for instance, when you consume a hot dog and have to replace it then the cost of replacement is a direct reflection on your well-being. A $1 hot dog that costs $2 one year later is a material change in living standards, all else equal, since the hot dog is an asset that you literally consume. A house is much more complex. [...]
> Of course, anyone who owns a house knows that it’s not that simple. You do basically consume your house over time. For instance, my home has appreciated substantially since I purchased it just 5 years ago and underwent a hellish remodel. At that time the cost of replacement was roughly $300 per square foot. But in the ensuing years the cost of replacement has increased to $400 per square foot. As my physical home falls apart over the years I will need to replace it. But the key point is that, as I replace these components the housing market is likely to revalue the total home value to account for this investment. So even though I am consuming my house over time I am very likely to recoup those costs.
* https://www.pragcap.com/should-house-prices-be-in-the-cpi/
Upkeep is a part of the CPI (as is Rent, under the broader Shelter category), but house/land prices are not. The "C" in CPI stands for consumer. Housing assets aren't in the CPI for the same reasons stocks and bonds are not: we don't consume them to live.
'Shelter' is considered in the CPI generally though (and with-in that things like home repair (lumber, plumbing) are accounted for); for Canada:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
And as the Bank of Canada notes, there is no internationally agreed upon method:
> International statistical agencies have unanimously adopted the net acquisition approach for durables, but there is no consensus about the best approach to the treatment of OA in the CPI16 (Table 1). Rental equivalence is the most popular approach among countries belonging to the Organisation for Economic Co- operation and Development.17 Johnson’s (2015) recent review of the U.K. CPI proposes using CPIH, which includes the costs of OA and is based on a rental- equivalence approach, as the U.K.’s main measure of inflation. Several countries in the European Union have refrained from incorporating OA into their CPI, although Eurostat is currently conducting a pilot study for the euro area based on the net acquisition approach. Australia and New Zealand use a net acquisition approach, while Sweden and Finland—like Canada—are using a partial user-cost approach. No country has adopted a full-fledged user-cost approach.
* https://www.bankofcanada.ca/wp-content/uploads/2015/11/boc-r...
In the StatCan CPI paper there is some explanation towards the complexities of shelter / owner accommodation:
* https://www150.statcan.gc.ca/n1/pub/62-553-x/2019001/chap-10...
* https://www150.statcan.gc.ca/n1/pub/62f0014m/62f0014m2017001...
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Yeah, and unless they were like, a doctor or a lawyer, they were living in borderline poverty.
They used older kids to watch younger kids, and generally let the kids fend more for themselves (my boomer dad was the oldest of 8 kids, and that was his experience, but having his grandparents die of spanish flu after WW2 hurt and helped a bit). I actually kind of admire that, and think we've lost something with more hands on parenting.
I totally agree. In a sense, FAANG salaries aren't especially high by historical standards, it is just that everyone else has fallen so far behind. $500k/year household income is firmly middle class, and is like earning $135k in 1980, my dad made more than that contracting in building nuclear plants with an associates degree from Spokane Community College.
You can't be serious.
>$135k in 1980, my dad made more than that contracting in building nuclear plants
That's over six times the median household income in 1980. $135k today would still be nearly twice the median household income.
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.
Yes, exactly.
As noted in the article and the underlying study, 80% of car purchases are done via a loan and financing is not part of the inflation measure. When you look at buying a home, most are also done via loans and still financing is not part of the measure. In both cases, interest rates are a factor in affordability and cost.
> Blindly stacking interest rates on top of CPI doesn't really make sense
Well then it's good that's not what they're doing.
Paradoxically over a long term, interest rates don't affect house affordability much.
People bid on houses at the limit of what they can spend - the constraint is their income not the interest rate.
As interest rates fall, people pay the same interest payments but bid higher on the house price (driving house prices up). As interest rates rise, people spend the same amount monthly (on interest payments) but borrow less in total and can bid less on houses.
It is a steady-state argument, so other things do matter (income changes, mortgage qualification rules, immigration into the area, dynamic effects of interest rate changes). Rent has other factors but the constraint of income has parallel effects.
I don't buy this is reasonable for home purchases. They already factor imputed rent in CPI; you'd have to somehow do some sort of complex weighing of own vs rent to factor mortgages (complex since it only affects new purchases given most folks are on fixed rate mortgages)
Is that right? What about people that didn't buy a home in 2023 because interest rates were high (i.e. they the impact of high interest rates was so large that they _wouldn't appear_ in your weighting because they were pushed out of the market)?
I was lucky to buy a house 10 years ago, and got a 3.5% fixed rate mortgage. Today the house value has gone up by 50%, and mortgage rates are about double at 7%. Just due to the mortgage increase alone, someone buying this house today would have a monthly payment about double what I am paying. I would not be able to afford it. On top of the mortgage rate increase, there's also that 50% inflation in the value of the house, meaning that if it sold today the new buyer (assuming they financed it) would be paying closer to triple (150% x 200%) what I am.
Most interest rates across the economy are set in relation to a benchmark rate, which loosely follow the Fed rate. E.g. the US prime rate.
This effects essentially all credit that isn't fixed rate, which is a huge portion.
How this effects you -- the price of credit that businesses use to function, which essentially every business uses, ultimately shows up in the cost of goods.
It goes both ways: in that case, we should also discount from CPI calculation the effect of sub-3% mortgages, low/zero interest auto loans, forgiven fraudulent PPP loans, etc.
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.
The price of beef went up. A lot. As a result, quite a lot of people stopped eating beef. Should we remove the beef from the CPI basket?
Similarly, the mortgage rates skyrocketed, and the number of home purchases plummeted. But many more people would buy a home, if only they could afford it. Just like more people would start eating beef again, if they could afford it.
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We artificially made interest rates low (look up open market operations). Low rates make risky ventures more financially attractive by making the DCF denominator smaller. People look to invest in growth instead of reliable revenue. That is, "bet on the future" becomes dramatically more attractive than "goods and services being made now". Additionally, it devalues wages and increases the value of financial assets. It's literally "rich get richer: the policy".
Anyone who is upset about NFTs millionares existing while EMS workers and teachers struggle, or upset about billionaires' staggering wealth inequality, or fraudulent do-nothing scam businesses like WeWork and Theranos, obviously stupid ventures like Juicero, or basically any economic upside-downness that most laypeople have recently come to blame on "capitalism" need look no further than LIRP and ZIRP. We snapped all the fingers of the invisible hand, but did it far upstream of anything that average people pay attention to. Anyone who wasn't paid in equity got fucking robbed over the last 20 years.
I don't really agree that interest should be included in CPI, but I do agree that CPI (and PCE) is an absolute joke that doesn't measure what it claims to.
>Blindly stacking
Stawman nonsense that literally no one suggested
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-cons...
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...
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.
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.
Wait, there is actually a misery index: 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.
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.
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.
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.
It sounds complicated, but I think this is actually the right approach.
Are you suggesting housing prices haven't gone up similar to food prices? Because they have. House prices in many places went up 50% in the last few years and never went back down. People aren't imagining this inflation. It isn't 3%, that's for damn sure. It's at least 10% right now, and probably hit as high as 20% during the pandemic.
You do know that the CPI (and CPE) are made up of components, right? Like Shelter, Energy, Transportation… Food.
Food can go up more that 3.5% while other items (like Transportation/Energy/Oil) go down, so on average the prices you see have gone up by 3.5%. The individual components may be more (or less) than the 3.5% average.
Further, the CPI is an average basket of goods and services (taken from spending surveys done by many people), which may or may not correspond to what you personally put in your own basket. In Canada, StatCan has a Personal Inflation Calculator where you can enter budget as see your personal inflation rate which may be different than the headline inflation rate:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020cal...
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Further, the number you see in headlines is a national average which may be different to what has happened to your local prices.
TL; DR: model of reality ≠ reality.
And then of course, they often report monthly numbers on an annualized basis.
Okay, because the air quotes and knee jerk dismissal annoy me...
The 3.x% being published is journalists repeating the reported CPI.
They are indeed still a free press, they're just dealing with people who don't on average understand how inflation measures are built, nor care.
Which is why there are articles that attempt to educate on that, whenever it comes to popular attention https://www.npr.org/2023/10/18/1197954369/two-indicators-bur... https://www.forbes.com/advisor/investing/cpi-consumer-price-...
If you wanted to air quote something, a "viewer-respecting" "intelligent" free press would be more accurately dismissive.
https://news.ycombinator.com/newsguidelines.html