Where I expose my ignorance of elemental economics

[SimpleDon]

The criticisms are based on ignorance. There are various measures of unemployment, all of which are well-defined and all of which have sound statistical sampling basis.
That is another claim that is not based on reality. There are many various methods for determining the rate of general price increases.

The first one I don't have as much problem, but there has been a huge argument about the economy when we compare employment numbers to just unemployment rate numbers. And for the second one, we have argued about this before. Taking the billion/trillion transactions a year and coming up with an exact number for inflation is an art. Somebody makes a decision on what to include, where to get the information and what features are considered. All are guesses.

It is an art only if you consider statistics as an art. Do you?

Most of the objections that I see from the right about the consumer price index are,

• That it is wrong and too low because inflation has to be higher because of all of the money that the Fed has created.
• That it is wrong and too high when used to adjust Social Security benefits because Democrats want to buy votes.

 

[coloradoatheist]

The first one I don't have as much problem, but there has been a huge argument about the economy when we compare employment numbers to just unemployment rate numbers. And for the second one, we have argued about this before. Taking the billion/trillion transactions a year and coming up with an exact number for inflation is an art. Somebody makes a decision on what to include, where to get the information and what features are considered. All are guesses.

It is an art only if you consider statistics as an art. Do you?

Most of the objections that I see from the right about the consumer price index are,

• That it is wrong and too low because inflation has to be higher because of all of the money that the Fed has created.
• That it is wrong and too high when used to adjust Social Security benefits because Democrats want to buy votes.

It's a lot of art because people have to make a lot of assumptions when making the decision on quality and replacements. How do you judge a phone? Do you judge it by megapixels and storage space or display size. How much is an iphone 5 better than an iphone 4, etc.

I have a problem with it when comparing long term not short term. And for the second part, I don't have a problem with it being used for SS adjustments, because it's not that big of a deal there.

 

[coloradoatheist]

It is the evolved mixed mode modern economy, the combination of capitalism and the government, that has been so successful. You and the other supply siders are telling us that we will be even more successful that the economy that produced all of this success if we change to more of a free market by getting the government out of the economy.

And yet when we do try to remove the government from the economy, through deregulation, and it causes massive problems like the savings and loan fiasco or the Great Recession all that we get from you are weak arguments that the problems were caused by the government again, that there was no way that removing regulations or failure to enforce the regulations could possibly cause the exact same problems that caused the regulations to be written in the first place.

When we enact the fiscal policies that you and the supply siders say will boost business investment and improve economic growth and after thirty five years they fail to do either you blame it on unknown factors in the economy and you blame the messenger, the measurements of the economy, even though thirty five years ago the case for supply side economic policies was based on those measurements without question.

The argument is finding the right balance of. As we saw with full 100% government run economy it fails miserable and 0% yes, but the US is creeping toward the 100% and that's the long term worry that I have, but you won't agree. When Rome expanded and had to increases its taxes, it fell apart, along with other issues. It took the USSR 60 years to fail.

Do you have any examples of the other party doing the same thing or are you going to leave it at unicorns?

It is more than one instance of the Republicans interfering in research that are contrary to their delusions. Just recently we learned that the Republicans ordered the CDC and the NIH to stop researching the impacts of our ever loosening gun laws.

I gave you two examples. When calculating the cost of ObamaCare the Democrats used the Physician Fix to help control costs, but nobody actually believed they could do the Physician fix. Several leading economists came out and said Sanders budget is way too rosy.

If the CBO and their economics is just a guess what economics are you depending on to make your recommendations to increase income inequality even more and to deregulate the economy? Isn't just a guess on your part? Or rather a faith in the possible existence of the free market?

We've done very little to deregulate the economy. The one deregulation you worried about actually was beneficial to the companies that did and the ones who stayed one side of the banking sector were the problems.

 

[Cheerful Charlie]

We did very well in the last Clinton years economically speaking without massive de-regulation. Regulations seem to thus be just another excuse from conservatives as to why their economic programs never seem to work as advertised. Lack of careful regulation during the Bush years led to the economic meltdown we suffered. We have the water crisis in Flint. We may need a lot more competent regulation, not less. Government is not "the problem". Bad government is the problem.

 

[coloradoatheist]

We did very well in the last Clinton years economically speaking without massive de-regulation. Regulations seem to thus be just another excuse from conservatives as to why their economic programs never seem to work as advertised. Lack of careful regulation during the Bush years led to the economic meltdown we suffered. We have the water crisis in Flint. We may need a lot more competent regulation, not less. Government is not "the problem". Bad government is the problem.

It's interesting because Clinton did cut capital gains tax rates from 28 to 20% and he passed NAFTA. But Clinton also benefited from jobs created for an event that we don't have coming up.

 

[bilby]

It is an art only if you consider statistics as an art. Do you?

Most of the objections that I see from the right about the consumer price index are,

• That it is wrong and too low because inflation has to be higher because of all of the money that the Fed has created.
• That it is wrong and too high when used to adjust Social Security benefits because Democrats want to buy votes.

It's a lot of art because people have to make a lot of assumptions when making the decision on quality and replacements. How do you judge a phone? Do you judge it by megapixels and storage space or display size. How much is an iphone 5 better than an iphone 4, etc.

I have a problem with it when comparing long term not short term. And for the second part, I don't have a problem with it being used for SS adjustments, because it's not that big of a deal there.

Is that how CPI is calculated in the US? By taking the price of individual consumer items, and totalling them up?

Or is it calculated by looking at the amount spent on categories of purchasing, such as 'telecommunications'?

I assume (from the way the ABS figures are presented, that in Australia they take the latter approach, and try to assess inflation at the aggregate level of types of spending - Are the US figures really compiled from the bottom up, rather than from the top down, by (for example) looking at the price tag on a 'typical mobile phone' each year, rather than simply looking at the consumer spend on mobile telephones as a class, and dividing by sales volume?

The more granular you get, the worse the data is (as your example shows). The top level data - looking at the total spend in wide categories, and dividing by volume of sales - gives a much better set of aggregate figures than looking at every item at the bottom level, and trying to total up all the price-tag changes to reach a final index number.

 

[coloradoatheist]

It's a lot of art because people have to make a lot of assumptions when making the decision on quality and replacements. How do you judge a phone? Do you judge it by megapixels and storage space or display size. How much is an iphone 5 better than an iphone 4, etc.

I have a problem with it when comparing long term not short term. And for the second part, I don't have a problem with it being used for SS adjustments, because it's not that big of a deal there.

Is that how CPI is calculated in the US? By taking the price of individual consumer items, and totalling them up?

Or is it calculated by looking at the amount spent on categories of purchasing, such as 'telecommunications'?

I assume (from the way the ABS figures are presented, that in Australia they take the latter approach, and try to assess inflation at the aggregate level of types of spending - Are the US figures really compiled from the bottom up, rather than from the top down, by (for example) looking at the price tag on a 'typical mobile phone' each year, rather than simply looking at the consumer spend on mobile telephones as a class, and dividing by sales volume?

The more granular you get, the worse the data is (as your example shows). The top level data - looking at the total spend in wide categories, and dividing by volume of sales - gives a much better set of aggregate figures than looking at every item at the bottom level, and trying to total up all the price-tag changes to reach a final index number.

So the BLS determines that people are buying 12 bananas and then they call up Target, Wal-mart, King Soopers etc and they ask how much does 12 bananas cost. They average the average and come up with the number.

 

[laughing dog]

It's a lot of art because people have to make a lot of assumptions when making the decision on quality and replacements. How do you judge a phone? Do you judge it by megapixels and storage space or display size. How much is an iphone 5 better than an iphone 4, etc.

I have a problem with it when comparing long term not short term. And for the second part, I don't have a problem with it being used for SS adjustments, because it's not that big of a deal there.

Is that how CPI is calculated in the US? By taking the price of individual consumer items, and totalling them up?

Or is it calculated by looking at the amount spent on categories of purchasing, such as 'telecommunications'?

I assume (from the way the ABS figures are presented, that in Australia they take the latter approach, and try to assess inflation at the aggregate level of types of spending - Are the US figures really compiled from the bottom up, rather than from the top down, by (for example) looking at the price tag on a 'typical mobile phone' each year, rather than simply looking at the consumer spend on mobile telephones as a class, and dividing by sales volume?

The more granular you get, the worse the data is (as your example shows). The top level data - looking at the total spend in wide categories, and dividing by volume of sales - gives a much better set of aggregate figures than looking at every item at the bottom level, and trying to total up all the price-tag changes to reach a final index number.

There are two general methods to construct a price index. The first is to use price data directly (which is how the CPI is constructed) or to total up spending and divide by units - which is how the "deflators" in the US GDP data are constructed.

There are refinements as to whether there are fixed weights (i.e. that the purchase pattern does not change) or variable weights.

coloradoatheist is terribly misinformed about price indices, their proper uses and their construction.

 

[coloradoatheist]

Is that how CPI is calculated in the US? By taking the price of individual consumer items, and totalling them up?

Or is it calculated by looking at the amount spent on categories of purchasing, such as 'telecommunications'?

I assume (from the way the ABS figures are presented, that in Australia they take the latter approach, and try to assess inflation at the aggregate level of types of spending - Are the US figures really compiled from the bottom up, rather than from the top down, by (for example) looking at the price tag on a 'typical mobile phone' each year, rather than simply looking at the consumer spend on mobile telephones as a class, and dividing by sales volume?

The more granular you get, the worse the data is (as your example shows). The top level data - looking at the total spend in wide categories, and dividing by volume of sales - gives a much better set of aggregate figures than looking at every item at the bottom level, and trying to total up all the price-tag changes to reach a final index number.

There are two general methods to construct a price index. The first is to use price data directly (which is how the CPI is constructed) or to total up spending and divide by units - which is how the "deflators" in the US GDP data are constructed.

There are refinements as to whether there are fixed weights (i.e. that the purchase pattern does not change) or variable weights.

coloradoatheist is terribly misinformed about price indices, their proper uses and their construction.

I went to the BLS website and here is their FAQ.

http://www.bls.gov/cpi/cpifaq.htm

They use expenditure forms from families and they update those once in a while and then every month they call establishments and ask about their prices for those good. Then they run calculations on weighted averages for all the goods and they come up with a number.

 

[laughing dog]

There are two general methods to construct a price index. The first is to use price data directly (which is how the CPI is constructed) or to total up spending and divide by units - which is how the "deflators" in the US GDP data are constructed.

There are refinements as to whether there are fixed weights (i.e. that the purchase pattern does not change) or variable weights.

coloradoatheist is terribly misinformed about price indices, their proper uses and their construction.

I went to the BLS website and here is their FAQ.

http://www.bls.gov/cpi/cpifaq.htm

They use expenditure forms from families and they update those once in a while and then every month they call establishments and ask about their prices for those good. Then they run calculations on weighted averages for all the goods and they come up with a number.

And you think this is relevant because...?

 

[coloradoatheist]

I went to the BLS website and here is their FAQ.

http://www.bls.gov/cpi/cpifaq.htm

They use expenditure forms from families and they update those once in a while and then every month they call establishments and ask about their prices for those good. Then they run calculations on weighted averages for all the goods and they come up with a number.

And you think this is relevant because...?

It's how the CPI is calculated and used to determine one of the inflation indexes. There are a whole bunch of assumptions and changes that go into finding this number and for it to get an official inflation was 2.4% is just an estimator and should be taken as one and not official.

 

[bilby]

And you think this is relevant because...?

It's how the CPI is calculated and used to determine one of the inflation indexes. There are a whole bunch of assumptions and changes that go into finding this number and for it to get an official inflation was 2.4% is just an estimator and should be taken as one and not official.

This word 'official'; I don't think it means what I think you think it means.

Why can't an estimate be official?

And why can't the trend of a series of estimates all derived by the same methodology be a valuable statistic?

Inflation is the change in CPI; the CPI index number is really only used to calculate that inflation number; so what does it matter if it is imperfect, as long as the imperfections are consistent from period to period?

 

[coloradoatheist]

It's how the CPI is calculated and used to determine one of the inflation indexes. There are a whole bunch of assumptions and changes that go into finding this number and for it to get an official inflation was 2.4% is just an estimator and should be taken as one and not official.

This word 'official'; I don't think it means what I think you think it means.

Why can't an estimate be official?

And why can't the trend of a series of estimates all derived by the same methodology be a valuable statistic?

Inflation is the change in CPI; the CPI index number is really only used to calculate that inflation number; so what does it matter if it is imperfect, as long as the imperfections are consistent from period to period?

But it doesn't stay the same from period to period, it drifts. About the only thing I could say that hasn't changed would be a gallon of gasoline, though that has changed ethanol levels over time.

 

[Metaphor]

Taking the billion/trillion transactions a year and coming up with an exact number for inflation is an art. Somebody makes a decision on what to include, where to get the information and what features are considered. All are guesses.

None of it is based on 'guessing'.

What to include (for example, in a consumer price index) is not based on guessing what households buy. Statisticians know what households buy because the survey what households buy.

How much prices move is not based on guessing. Statisticians know how much things cost because they either sample prices or take a census of prices (supermarket scanner data).

What features to include is not based on guessing. Hedonic adjustments are not 'guesses'.

Oy vey.

 

[laughing dog]

And you think this is relevant because...?

It's how the CPI is calculated and used to determine one of the inflation indexes. There are a whole bunch of assumptions and changes that go into finding this number and for it to get an official inflation was 2.4% is just an estimator and should be taken as one and not official.

I have no idea what you mean. The CPI is one price index and it measures inflation for a fixed weight basket of goods and services. There is no guess work involved. It is no more official than the PCE or GDP deflator.

 

[SimpleDon]

Why do you think that the laffer curve changes the tax base? If people want more money they have to work harder. If they turn down work because they have to pay more taxes for the money that they earn the work will still get done.

So it is a yes that you feel that we had many more deductions, that is loopholes, in the tax code in 1980 than we have now. Can you name the loopholes that Reagan closed that brought the tax rate cuts of about 71% minus 27%, the lowest marginal rate of the Reaganomics revolution, equals 44% reduction, down to the 4% that you claim? Did income tax loophole closing also compensate for the lost revenues from the inheritance and capital gains tax cuts too?

The inheritance tax has always been a small % of total tax revenue.

As for capital gains--are you not aware that the capital gains tax is a subcase of the income tax? Most loopholes that applied to income tax also applied to capital gains.

I understand all of that.

The inheritance tax is important because it lessens the amount of money that is captured by the wealthy and redistributes it into the real economy of producing products for consumption. The wealth of the wealthy does little to nothing to boost the economy that 99% of the population depends on to live. The money of the wealthy is in the stock market, T-Bills, etc. that don't help the economy or in corporate bonds that are issued by corporations to try to avoid a few percentage points in interest over what a bank would charge them for a loan.

Capital gains is of course, finally personal income. Finally, we only have people.

Lower tax rate for capital gains is just one of the ways devised over the years to defeat the progressive income tax. In essence corporations become tax havens for the wealthy.

This is why I am a proponent of abandoning the corporate income tax and taxing the corporate profits as the personal income of the shareholders at whatever rate that they pay. It would relieve corporation management of having to run the financial side of the corporation as a tax haven, of having to maximize capital gains and minimizing income. It would relieve a lot of the legalized bribery that goes to politicians to write exemptions for specific corporations into the tax code. It would sharpen their focus back to making a good product and selling it for a fair price.

The main advantage of the corporate income tax is for countries with a positive trade balance. In effect you are taxing the foreigners who buy the products of your country. This advantage could be duplicated easily if we treated the distributed profits of a corporation exactly the same way that we do wages, by withholding a percentage of the distribution and forcing the recipients to file income tax forms to retrieve it.

 

[SimpleDon]

The methodologies are precise but that doesn't mean there is a good rationale for the specific precision.

Actually there are good rationales for the construction of price indices. Just because someone doesn't understand them or agree with them does not make the poor rationales.

Seconded.

There is a strong theme developing here that we should run the economy the economy the way that the right wants to run it even though the right doesn't understand how the economy actually works.

That it should be good enough that the right really, really believes that moderate increases in the minimum wage does produce enough unemployment to cancel out the good that it does, for example. That just because they have no way to prove this, with all of the confusing factors that go into the economic mix, somehow proves that they are right about their presumably gut feelings that even moderate increases in the minimum wage hurts the very people it is suppose to help. But of course, no other wage increase results in widespread unemployment.

 

[SimpleDon]

Actually there are good rationales for the construction of price indices. Just because someone doesn't understand them or agree with them does not make the poor rationales.

And it has been controversial for a long time, it was adjusted in the 90s. Economists on both sides think it mis-measures things so it can be off either way. But to say for absolutely certain that in the billion transactions we have in a year that inflation is exactly X is funny.

No one is claiming that the CPI reflects the living costs for any individual. But the year to year change in the CPI is very close to the inflation or deflation seen by the average consumer. This is all that we ask of it.

The correction that was made in the 1990's to the CPI was nothing more than the gut feeling on the part of the Republican majority on the Boskin Commission that the BLS calculation of the CPI was overstating the inflation rate seen by the average consumer by ~1%. Acting on this nothing more than a gut feeling the commission ordered the BLS to calculate the CPI the same way that they had always done it and to then deduct 1.1% from the calculated number, except when it would go below zero, that is, when it would show that we are in deflation.

This may satisfy you that the calculation of the CPI is widely assumed to be faulty, but it shows me that you are very easy to please about the so-called facts that support your preconceived biases, nothing more.

 

[Cheerful Charlie]

Actually there are good rationales for the construction of price indices. Just because someone doesn't understand them or agree with them does not make the poor rationales.

Seconded.

There is a strong theme developing here that we should run the economy the economy the way that the right wants to run it even though the right doesn't understand how the economy actually works.

That it should be good enough that the right really, really believes that moderate increases in the minimum wage does produce enough unemployment to cancel out the good that it does, for example. That just because they have no way to prove this, with all of the confusing factors that go into the economic mix, somehow proves that they are right about their presumably gut feelings that even moderate increases in the minimum wage hurts the very people it is suppose to help. But of course, no other wage increase results in widespread unemployment.

http://www.bloomberg.com/news/artic...ates-urge-increase-in-u-s-worker-minimum-wage

Seven recipients of the Nobel Prize in Economic Sciences were among 75 economists endorsing an increase in the minimum wage for U.S. workers.
In a letter released today, the group called for the hourly minimum wage to reach $10.10 by 2016 from its current $7.25, and then be indexed for inflation thereafter. They said “the weight” of economic research shows higher pay doesn’t lead to fewer jobs.
Past increases in hourly pay have had “little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market,” the economists wrote. “A minimum wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings.”

----

When you have seven Nobel laureate economists plus others telling us we must raise the minimum wage, this is significant. And utterly ignored by the right. Careful analysis by some of the world's best economists that raising the minimum wage does not have the baleful effects the right claims it does is simply brushed off.

When 10 Nobel prize winning economists told Bush his tax cuts would only create massive deficits, they were ignored and we got massive deficits. The right simply can't get anything right and doesn't do careful analysis. Instead they have ideology and rationalization.

 

[coloradoatheist]

It's how the CPI is calculated and used to determine one of the inflation indexes. There are a whole bunch of assumptions and changes that go into finding this number and for it to get an official inflation was 2.4% is just an estimator and should be taken as one and not official.

I have no idea what you mean. The CPI is one price index and it measures inflation for a fixed weight basket of goods and services. There is no guess work involved. It is no more official than the PCE or GDP deflator.

The CPI has been debated for a long time as having issues, so it's nothing new.

An easy one they have done lately is to take a Sears Catalog from the year you pick, find the average hourly salary at the time and now and compare how how much working time it took to bought those items. When they do it that we found it takes much less time of working to buy the items and we are getting much better choices and quality today.