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Inflation seriously understated and thus growth overstated?

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Re: Inflation seriously understated and thus growth overstat

Unread postby Outcast_Searcher » Wed 10 May 2017, 13:06:09

Hawkcreek wrote:
marmico wrote:Shadowstats and Chapwood are nutters. 1300% inflation since 1980. LOL.
View some 2016 consumer energy prices relative to 1980.
https://www.eia.gov/outlooks/steo/realprices/
Electricity (cents per kilowatthour) from 5.4 to 12.6 or 135%.
Natural gas (dollars per thousand cubic feet) from 3.7 to 10.1 or 175%.
Regular gasoline (dollars per gallon) from 1.25 to 2.15 or 75%.


Base model 1980 Ford F-150 approx $4000 (I bought one)
Base model 2017 Ford F-150 approx $38000

Yep, only 950%

But you're not comparing apples to apples. The government people who report inflation at least make an attempt to and document the process, for things like technology changes on such products.

So in 1980 you didn't have a LOT of safety equipment like multiple airbags, side beams, etc. Not to mention all the consumer electronics, etc. built in. A 1980 era ford Ford with a carb tended to be unreliable in 10 years, even with low mileage. Today, more like 20, especially with low mileage.

Housing and rent in the typical US city or town has gone up more like 300% since 1980 on average. Why not cite that, since housing is generally a higher proportion of household spending than cars?

When doomers keep playing such games, they just get less and less credible. Inflation in the US over the long term is plenty alarming cumulatively (IMO) without needing to exaggerate or willfully distort.
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Re: Inflation seriously understated and thus growth overstat

Unread postby donstewart » Wed 10 May 2017, 13:54:34

quality adjustments
The factor that is most relevant to the 'cost of living' is the 'cost of making a living'. Driving to work is a cost of living in most jobs in most places in the United States. Whether the car has no radio, a good radio, or a super-deluxe sound system is not really relevant. Likewise, in 1950 the median household in the US was satisfied with around 1800 square feet, which furnished shelter. The fact that many Americans now think they need 4000 square feet does not furnish shelter which was not available in 1950.

Charles Hugh Smith has done some work figuring out how the basic cost of living has been increasing over the last couple of decades. His cost increase numbers are generally in line with Shadowstats. I'm not willing to search Charles' postings to find it. If you are interested, you can look.

The point is that many people in the US now need to have their basic cost of living subsidized in ways that was not true decades ago. Consequently, we may say that their standard of living has fallen. Whether they have toys like smart phones is basically not relevant.

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Re: Inflation seriously understated and thus growth overstat

Unread postby onlooker » Wed 10 May 2017, 14:03:44

I think two factors attest to this generally downward trend in the standard of living, First percentage of debt carried by typical households. This has been going steadily up. Second, is the fact that unlike in the years just after WWII, whereby only one wage earner was required to support a household above poverty levels, now two are needed
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Re: Inflation seriously understated and thus growth overstat

Unread postby donstewart » Wed 10 May 2017, 14:57:01

@onlooker
I will relate a conversation I had with a University professor from a college in a small town. Like most small towns in the US, the town is economically depressed. The Board of the college challenged the economics department to develop some 'economic development' plans, especially to help poor people.

The unspoken assumption is 'to make poor people rich enough to live here without government support'. I pointed out that there are two strategies. The first is to figure out a way for poor people to make more money. (Good luck with that. Donald Trump is trying.). The second is to figure out a way for poor people to live comfortably without much in the way of government support, by adopting more third world strategies. For example, letting them construct their own houses a piece at a time and not hassle them with building codes and restrictive zoning.

The professor was astonished. Of course, he just assumed that his charge was the first strategy. He was briefly enthused about the second strategy, and could understand all the ways that the government increases the cost of living for poor people. But as we continued to talk, he began to recognize the cold reality. The government officials would like nothing better than to move the poor people into the next county or the next state (in the good old days, it was 'send them to California').

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Re: Inflation seriously understated and thus growth overstat

Unread postby donstewart » Wed 10 May 2017, 15:08:22

Charles Hugh Smith on inflation
http://www.oftwominds.com/blog.html
This is today's blog post. Note the skyrocketing cost of college and medical care, as compared to an automobile. Also note the declining wages of those with bachelor's degrees.
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Re: Inflation seriously understated and thus growth overstat

Unread postby onlooker » Wed 10 May 2017, 15:27:33

I think Don, the dollar being taken off the gold standard paved the way for inflation. Also, lending creates spurts of boosted demand also raising prices. A bloated Govt creates extra fees, fines and taxes for the average person. Additionally, every human need and want seems affixed with a price tag
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Re: Inflation seriously understated and thus growth overstat

Unread postby Outcast_Searcher » Wed 10 May 2017, 15:37:26

donstewart wrote:Charles Hugh Smith on inflation
http://www.oftwominds.com/blog.html
This is today's blog post. Note the skyrocketing cost of college and medical care, as compared to an automobile. Also note the declining wages of those with bachelor's degrees.
Don Stewart

So you cherry pick the two highest inflation things, medical care and college. How about the deflationary things like electronics?
That's why there are adjustments depending on the category -- to reflect some sort of constant purchasing parity resembling reality. That's also why the whole spectrum of spending needs to be looked at -- if I proclaim inflation is actually strong deflation because I only count electronics, how valid is that?

But let's pretend that blogger X has all the answers if they tell the tale we want to hear. :roll:
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Re: Inflation seriously understated and thus growth overstat

Unread postby pstarr » Wed 10 May 2017, 15:42:25

Look above: housing inflation at %450+- for same period.

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Re: Inflation seriously understated and thus growth overstat

Unread postby GHung » Wed 10 May 2017, 15:50:36

donstewart wrote:quality adjustments
The factor that is most relevant to the 'cost of living' is the 'cost of making a living'. Driving to work is a cost of living in most jobs in most places in the United States. Whether the car has no radio, a good radio, or a super-deluxe sound system is not really relevant. Likewise, in 1950 the median household in the US was satisfied with around 1800 square feet, which furnished shelter. The fact that many Americans now think they need 4000 square feet does not furnish shelter which was not available in 1950.

Charles Hugh Smith has done some work figuring out how the basic cost of living has been increasing over the last couple of decades. His cost increase numbers are generally in line with Shadowstats. I'm not willing to search Charles' postings to find it. If you are interested, you can look.

The point is that many people in the US now need to have their basic cost of living subsidized in ways that was not true decades ago. Consequently, we may say that their standard of living has fallen. Whether they have toys like smart phones is basically not relevant.

Don Stewart


Seems many of these latter day costs are due to societal expectations rather than necessities. Folks are constantly being programmed to spend and consume, and ostracized if they don't. I didn't have a cell phone for years, and when I finally got one, I got a 5 year old model new on Ebay for $60 that is nearly indestructible and waterproof, and a plan that costs $80 per year; 2000 minutes; much more than I needed. My grandson laughed until I threw my phone hard against a wall and challenged him to do that with his new $700 iPhone. Then I threw it in the toilet for 5 minutes. He declined again. Their family "unlimited plan" is over $350/month for 2 years. Gotta have it though.
That's the sort of stuff people get bamboozled into "needing" while expecting incomes to keep pace with costs of living. $150 tennis shoes? Really? That's half my clothing budget for the year, or more. Been wearing the same overalls for perhaps 15 years. I finally ordered a new pair of Muck Boots after 14 years. My computers are from salvage; upgraded to be lower power (24 volt DC), our vehicles are well maintained older models (8 and 12 years), both with less than 90K miles and originally paid for with cash, no mortgage, no power bill, no water/sewer bill, low food bills, etc, no debt, and we still manage to save money on one full time income. Inflation be damned. If everyone lived more like this our economy would crash.

The consumer lifestyle may have become normalized, but it never seemed normal to me. Maybe I'm just too lazy.
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Re: Inflation seriously understated and thus growth overstat

Unread postby Squilliam » Wed 10 May 2017, 15:55:04

When something is seen as 'good' or is targetted, and people are rewarded to meet that target, then there is an incentive to massage statistics to show a more positive picture. The simplification of this could be written as: Show me good news and I will give you money. The same applies to grade inflation whereby teachers want to give students better grades because it makes them look better.

https://en.wikipedia.org/wiki/Grade_inf ... 89_to_2015

I don't think it is as much a wilful attempt to distort figures, but an emotional incentive to see things a certain way. With respect to inflation there is a double incentive being played. They want to show growth because politicians get judged mainly by this metric (for better or worse) and they want to show low inflation to support this growth figure. They also want to show low inflation because a significant proportion of government costs are dependent on inflation figures (wages for staff and benefits). Given these two factors it does make sense that inflation could be unreported, or even vastly underreported.

However on the other hand aren't inflation numbers checked? Surely some economics professor wants to make a name for himself by saying that the true level of inflation has been vastly under-reported? Or have we become so used to the official numbers that anyone raising doubt on them is labeled a crank? I have a sense that the inflation figures have been wrong for me in my country for instance in a big way, but the figures released have an air of accuracy in much the same way that census results are seen as pretty much infallible. The problem here is that anyone saying that inflation levels are much higher is definitely a fringe player within the industry.
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Re: Inflation seriously understated and thus growth overstat

Unread postby Outcast_Searcher » Wed 10 May 2017, 15:57:23

onlooker wrote:I think two factors attest to this generally downward trend in the standard of living, First percentage of debt carried by typical households. This has been going steadily up. Second, is the fact that unlike in the years just after WWII, whereby only one wage earner was required to support a household above poverty levels, now two are needed

That's generally BS.

You are confusing want and need. You are confusing poverty and keeping up with the Joneses.

You don't NEED multiple cars, a McMansion, to fly to multiple vacations, international travel, etc.

https://en.wikipedia.org/wiki/Household ... ted_States
CBO income growth study

...


Between 1979 and 2011, gross median household income, adjusted for inflation, rose from $59,400 to $75,200, or 26.5%. This compares with the Census' growth of 10%.[19] However, once adjusted for household size and looking at taxes from an after-tax perspective, real median household income grew 46%, representing significant growth.[20]


In 2016, the federal poverty line for a family of four is $24,250.

https://www.parkviewmc.com/app/files/pu ... -Chart.pdf

So this means that in 2011, the median US household income level was over 3 times the higher 2016 poverty level for a family of four.

And income, adjusted for inflation, has grown substantially over time, over the past several decades.

Pretending like first world "I don't have all the money I WANT" equates to widespread poverty and doom is simply not credible.
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Re: Inflation seriously understated and thus growth overstat

Unread postby GHung » Wed 10 May 2017, 16:03:04

"Pretending like first world "I don't have all the money I WANT" equates to widespread poverty and doom is simply not credible."

What it will equate to is even more unreasonable expectations when all of this goes to shit. Admit it or not, we are running out of Planet to exploit, even as more people feel entitled to consume more, and as our economy has become more locked into increasing levels of consumption, collectively and as individuals.
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Re: Inflation seriously understated and thus growth overstat

Unread postby Squilliam » Wed 10 May 2017, 16:05:15

GHung wrote:
Seems many of these latter day costs are due to societal expectations rather than necessities. Folks are constantly being programmed to spend and consume, and ostracized if they don't. I didn't have a cell phone for years, and when I finally got one, I got a 5 year old model new on Ebay for $60 that is nearly indestructible and waterproof, and a plan that costs $80 per year; 2000 minutes; much more than I needed. My grandson laughed until I threw my phone hard against a wall and challenged him to do that with his new $700 iPhone. Then I threw it in the toilet for 5 minutes. He declined again. Their family "unlimited plan" is over $350/month for 2 years. Gotta have it though.


Was a bowl of water not handy at the time you put it in the toilet? :P

The issue isn't with the small things people buy, but often the structural costs such as the cost of rent, the cost of student loans, the cost of local taxes (always seem to rise much faster than headline inflation) as well as the cost of necessities.
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Re: Inflation seriously understated and thus growth overstat

Unread postby onlooker » Wed 10 May 2017, 16:12:53

http://www.marketwatch.com/story/americ ... 2015-12-09
However, the share of income held by middle-income families has plunged to 43% of households in 2015 versus 62% in 1971; lower-income households have remained stable (at around 9% in 2015) while the share of income held by upper-income households has surged to 49% in 2015 from 29% in 1971. (The demographic and income data were derived from the government’s nationwide and nationally representative “Current Population Survey, Annual Social and Economic Supplements” (or ASEC), which serves the basis for the U.S. Census Bureau reports on income and poverty.)

“The hollowing of the American middle class has proceeded steadily for more than four decades since 1971,” researchers Richard Fry and Rakesh Kochhar wrote. “Each decade has ended with a smaller share of adults living in middle-income households than at the beginning of the decade, and no single decade stands out as having triggered or hastened the decline in the middle.” That said, the last 15 years have been particularly brutal for the middle class: In 2014, the median income of these households was 4% less than it was in 2000. What’s more, their median wealth — that is, their assets minus their debts— fell by 28% from 2001 to 2013, due in part to the housing market crisis and the Great Recession of 2008.
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Re: Inflation seriously understated and thus growth overstat

Unread postby GHung » Wed 10 May 2017, 16:15:04

Yeah, Squill, the toilet made my point better. Besides, my daughter-in-law is a total clean freak.

As for those structural costs, they increase as the costs of maintaining growth go up. Our property taxes have actually gone down somewhat because I challenged them; forced the county to justify previous increases, which they couldn't do. Our vehicle taxes have gone down because we keep vehicles longer and the taxes drop as they age. Point being, those structural costs can be mitigated somewhat, but not if you are 'driven' to move into a bigger house, drive newer cars, etc. Insurance is the one area that I consider extortion, but, again, they go up because the costs of claims (many of which could have been avoided) go up. Industries also have to pay for all of those intermediaries they employ; many who don't produce much of anything.
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Re: Inflation seriously understated and thus growth overstat

Unread postby Outcast_Searcher » Wed 10 May 2017, 16:36:39

pstarr wrote:Look above: housing inflation at %450+- for same period.

Yes, Iphone are cheap. Selfies are cheap. But those toys don't bring home the bacon

Look above where? There are a lot of posts (many with non-credible sources) making a lot of claims.

SInce you're talking about housing inflation in the US, let's try a credible source with actual specific numbers.

http://www.economist.com/blogs/graphicd ... y-chart-20

So for housing in the US from Q1 1980 to Q2 2016, we have inflation of 254.8%. (Base started at 100).

Using the rule of 72, and calling it 36 years: 4% inflation would give us two doublings, or 400%. 2% inflation would give us one doubling or 200%. So eyeballing it, it looks like roughly 2.3% or so. Not exactly eye-popping, now is it?

This seems a little low for my area, a small city, where it's more like 400% using comparable rents, but 4% is FAR from eye-popping inflation.

Oh, and if people don't like NYC and SF, etc. inflation, then they should live elsewhere, obviously. This is America -- they have the right to make choices.
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Re: Inflation seriously understated and thus growth overstat

Unread postby Squilliam » Wed 10 May 2017, 16:39:22

Ghung its nice to see you around. I remember you from TOD, do you remember me?

It's interesting that your costs go down with age. Our costs for things like car taxes and inspections actually go up with age because they incorporate some of the costs for accident payouts into the cars (we have a universal accident insurance system called ACC whereby accidents are covered by insurance and you can't sue at fault parties) and they assume, probably correctly, that older cars are more likely to have safety faults.

We have a situation in my city whereby people with full time jobs can't afford rent. They live in cars because they couldn't get into affordable accommodation for LOVE or MONEY. In this instance it has nothing to do with egregious consumption because they simply have nowhere to live. Our house prices are rising like crazy, and that is fueling a debt bubble that everyone knows about, but absolutely no one in power is doing anything about. It certainly doesn't help that our representatives in parliament own 3 houses on average.

Your point about the intermediaries is pretty compelling actually. EROEI doesn't take into account the cost of the house in the Bahamas for the executives of the company you buy power from. Whilst there may be a higher efficiency in connecting to the grid the economic/energy surplus is not transferred to the people buying power, but instead to the people that control the power company. I guess this would be the deadweight cost of monopolies that economists like to talk about.
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Re: Inflation seriously understated and thus growth overstat

Unread postby dissident » Wed 10 May 2017, 17:27:41

We actually have people in this thread defending hedonics adjustments. Wow.

Get a grip. Extra air bags don't justify the price increases and following this "logic" no products can ever be compared if they are from different periods (sufficiently removed in time as is the case here) since there will be some extra feature that was not there before. Therefore the concept of inflation is ill defined. What is ill defined is nitpicking fixation on irrelevant details. Since I can't buy an F-150 without all the new features it makes no difference that they are there. But the category of light pickup truck remains a valid one. Maybe if the F-150 could fly me to Jupiter, then it would be in a different category.

It's funny that land prices are never included in inflation calculations. Land is the only thing that does not get new features with time and municipal services (sewers, electricity, which are a type of value added to the land) are also "invariant". But so much effort is spent on adjusting prices of TVs (etc) to fictional values based on the number of gimmick features they have. This is outright fraud. The only price the TV has is the one in the store and not some concocted price by a government agency.

Another joke aspect of the official CPI is the inflation category weights. So food is always scaled by 0.13 as if the fraction of food costs in domestic budgets is an invariant. We are seeing around 7% food price inflation for many years now. This is a price doubling every 10 years. Wages do not inflate by 7% per year and, in fact, are falling in real terms for most people. So the fixed 0.13 weight is simply nonsense.
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Re: Inflation seriously understated and thus growth overstat

Unread postby Squilliam » Wed 10 May 2017, 17:41:03

Outcast_Searcher wrote:
Cog wrote:Or it could be that Zerohedge is doing their usual "We are all doomed" reporting gig. How has that worked out for them?

All you need is a little common sense to debunk the crazy idea that inflation has been 8% on average for decades. If that were the case, prices would roughly double every 9 years.

My house in central KY in a small city cost my dad $20,000 in 1962. The tax assessment is currently $170,000, and there have been some improvements over the years.

So that's about 8x in 55 years (given the impact of improvements like the added sun-room).

At 4% inflation, that's 3 doublings in 54 years, or a total of 8x which gets us to $160,000.

So 4% is close. There's nothing remarkable about my state or community, so I'm sure this is in the ballpark experience of the US average -- just like the MSM reported figures.

Considering this covered the inflationary 60's, 70's, and early 80's, 4% on average doesn't seem "scary" at all.

A cheap car in 1970 was about $3000. A cheap car in 2017 is in the lower $20's. Using $24,000 would be three doublings, to keep the math simple. So for cars you have a rate of about 6%, which given all the safety and comfort and quality improvements isn't dramatic.

For the house 8% for the 55 year period would give a little over 6 doublings. That would be $640,000 + today. Not even remotely in the ballpark of reality.

So again, unless you want to cherry pick AND not count adjustments for technology, safety, quality, etc. like the government does, then the zerohedge numbers don't pass the laugh test.

Not that I would expect the perma-short-term doomers to ever acknowledge economic reality.


Just wanted to drag this quote here because it is relevant here.
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Re: Inflation seriously understated and thus growth overstat

Unread postby Squilliam » Wed 10 May 2017, 17:50:37

dissident wrote:We actually have people in this thread defending hedonics adjustments. Wow.


It's funny that land prices are never included in inflation calculations. Land is the only thing that does not get new features with time and municipal services (sewers, electricity, which are a type of value added to the land) are also "invariant". But so much effort is spent on adjusting prices of TVs (etc) to fictional values based on the number of gimmick features they have. This is outright fraud. The only price the TV has is the one in the store and not some concocted price by a government agency.


Land prices are probably a prime example of obfuscation.

Another joke aspect of the official CPI is the inflation category weights. So food is always scaled by 0.13 as if the fraction of food costs in domestic budgets is an invariant. We are seeing around 7% food price inflation for many years now. This is a price doubling every 10 years. Wages do not inflate by 7% per year and, in fact, are falling in real terms for most people. So the fixed 0.13 weight is simply nonsense.


I guess this begs the question doesn't it? If inflation is meant to be a figure that factors into cost of living adjustments for people then surely the level of inflation should represent those that actually depend on the adjustment? The people that inflation really affects are those at the bottom half of the scale that either get transfer payments adjusted by inflation, or wage rates adjusted by inflation. For these people the relative scaling does not actually make sense because they spend far more than 13% on their food budget most likely. On the other hand if you live on the other end of the scale the prices for luxuries are also rising far faster than the rate of inflation, so for whom does inflation actually represent?
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