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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, 14:06:09

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.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Inflation seriously understated and thus growth overstat

Unread postby donstewart » Wed 10 May 2017, 14:54:34

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, 15:03:44

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, 15:57:01

@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, 16:08:22

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, 16:27:33

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, 16:37:26

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:
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Inflation seriously understated and thus growth overstat

Unread postby GHung » Wed 10 May 2017, 16:50:36

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 Outcast_Searcher » Wed 10 May 2017, 16:57:23

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.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Inflation seriously understated and thus growth overstat

Unread postby GHung » Wed 10 May 2017, 17:03:04

"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 onlooker » Wed 10 May 2017, 17:12:53

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, 17:15:04

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, 17:36:39

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.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Inflation seriously understated and thus growth overstat

Unread postby dissident » Wed 10 May 2017, 18:27:41

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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