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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 donstewart » Wed 10 May 2017, 17:59:02

Understanding vs. Political Posturing

For those interested in how humans really put together emotions, brains, and minds in the real world, I recommend the new book How Emotions Are Made, by Lisa Feldman Barrett.

Barrett gives evidence that any given human mind is the result of many brains, some of them not human brains. Every individual is a different result of complex interactions which are never exactly duplicated. Nevertheless, certain generalizations can be made. For example, we know that those children who grow up in poverty suffer brain damage, which is unlikely to ever be repaired in their lifetime. We also know that the 'poverty' is relative: not relative to the standard of living of a dark ages peasant, but relative to other people in their environment.

Lest that sound to 'liberal', it is also true that 'If your brain operates by prediction and construction and rewires itself through experience, then it's no overstatement to say that if you change your current experiences today, you can change who you become tomorrow.' Which sounds pretty 'conservative'.

Which leaves us, I think, with no really satisfactory way of adjusting prices to some ideal index of inflation. In a world of media saturation where everyone is rich and beautiful, does 'rich and beautiful' become the norm against which everyone else experiences poverty? Does that account for the great increase in depression, addiction, and autoimmune diseases in the modern world?

Suffice to say that no human is either determined by the genes they inherited or the insular family life they experienced in childhood or by the society they grew up in. The resultant human is a complex consequence of all those things. Which makes it impossible, I think, to speak with persuasiveness about price trends over decades or centuries.

I have arguments with my son-in-law about my supposed 'pessimism'. He says that both I and his father talk about the 'good old days' when everything was better. But he thinks that everything must have been worse...we didn't grow up with smart phones or video games. I tend to look at things like the freedom we experienced (roaming the woods at will, disappearing after school and showing up for supper, spending the night on a sand bar in the river, etc.); the small penalties associated with childhood mischief (all the cops had teenagers, also); the fact that so much of what you needed to learn was right there in front of you (the blacksmith, the farmer, the tinsmith, the baker, etc.). To my way of thinking, the fact that we had very little fossil fuels was actually an advantage. Neither my father nor my wife's father ever drove a car to work. There is really no way to compare that world to the current world which will convince any naysayers.

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Re: Inflation seriously understated and thus growth overstat

Unread postby Squilliam » Wed 10 May 2017, 18:19:29

Interesting points Don. All pretty good points, and it makes me think we should look for points of comparison say between different countries that have different values. Denmark vs U.S.A. would be a good one, wouldn't it? ... -17-charts
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Re: Inflation seriously understated and thus growth overstat

Unread postby evilgenius » Thu 11 May 2017, 12:54:03

Inflation, as I experience it, is subject to my personal income. It doesn't matter too much if a loaf of bread doubles in price if my income has gone up by three times in the same period. One problem is that people's incomes are not rising. Another problem is that people tend to weight price increases differently in their memories than price decreases. Yes, some prices do go down. In a given year that loaf of bread can get cheaper too. Even though it does, however, that won't stop people grousing about how 'inflation is so obvious,' and shouldn't those who don't think it is as high as it is just 'go down to my local grocery store in order to see just how much.'

The price of anything is derived through supply and demand. That hasn't changed. What has changed is how much supply and how much demand. You have to talk about trends if you are going to grouse about inflation, not blips. The general trend, at least in the US, has been declining real wages.

Working people have had to battle a number of things. One factor has been the Fed, which has consistently raised interest rates every time that wages have gone up enough for working people to appreciate any real gain. Another factor has been working people's own greed, which manifested itself most recently on a large scale in the outright fraud that so many people willfully engaged in when they lied about their circumstances when applying for mortgages on such a scale that it invited collapse.

Along those lines, there has been a demon loose economically for decades; pre-tax healthcare contributions by employees to employer sponsored healthcare plans. These have incentivized employers to seek more of the same from employees because with them employers do not have to pay the incremental employer side of taxes due as the cost of employing people as their supposed wages go up. Yes, I said supposed wages. Can you really call it a wage increase when it goes entirely to the catch 22 that develops when you go down that pre-tax contribution rabbit hole? Employees feel good about it because healthcare costs have gone up, but those costs generally only went up because of the swollen amount of pre-tax dollars chasing after them. Meanwhile, real wages that people can spend in a discretionary manner have gone down. People can borrow to make up the difference, but at some time that becomes a drag upon growth because rates can only go so low before they don't have anymore room to borrow more without their real wages increasing.
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