Why Have Policymakers Abandoned the Working Class?

[dismal]

You have two things, you have an asset price inflation for real estate and you would have a general increase in overall inflation. People would understand inflation of other things like milk, gas prices, car prices. The Fed person even called it wage inflation. So how can he can he be worried about wage inflation if inflation just means general price increase.

As far as families go, they think of it in their terms. These items that I normally buy have gone up by X% or whatever. Measuring inflation is very imprecise though we treat it as something absolutely set in stone.

No, measuring inflation is actually pretty easy. It is nothing but price increases year to year. Prices are easy to track.

CPI not equal "inflation". It is an estimate of it based on certain assumptions.

Inflation is defined as a general rise in the price of goods. This is indeed impossible to measure. CPI is an index that measures the price of a specific basket of goods that is deemed to be representative of what a consumer would buy. There are a lot of judgement calls that must go into what is in this basket, and indeed what the price of anything is. Even if I asked for something far simpler such as "what's the price of TVs?" there is no easy answer.

 

[ksen]

Asset price inflation is called "Capital Gains" and is considered a good thing, so much so that we have tax advantages to encourage it. And wage and commodity price inflation is considered to be a bad thing so much so that we manipulate the whole economy through the mechanism of setting interest rates to try to avoid it.

The wealthy profit from inflation, but they are the ones who want to have inflation tightly controlled.

Go figure.

As we found out in the last decade, asset price inflation can be very bad.

Asset price inflation is a bubble which is why it made no sense when you wrote "inflation and bubbles" above.

There are pros and cons to each type of inflation. Though the problems of deflation are overrated.

I guess if you consider entering another depression as not much to worry about.

 

[coloradoatheist]

As we found out in the last decade, asset price inflation can be very bad.

Asset price inflation is a bubble which is why it made no sense when you wrote "inflation and bubbles" above.

There are pros and cons to each type of inflation. Though the problems of deflation are overrated.

I guess if you consider entering another depression as not much to worry about.

Deflation is like a fever in a body, it's used to kill off the underlying disease. And deflation is the self-correcting mechanism if allowed to work. Instead we want to try and stop the recovery because it may take a bit.

 

[KeepTalking]

Not unless the price of everything else doubles within the same time period and causes devaluation of the currency.

But what we had was inflation in one major sector

I saw what you did there, you redefined inflation as a rise in the price of X.

Sure, if you want to redefine inflation, we could call that inflation, but then the word loses its context with regard to fluctuations in the value of currency. The data posted shows that actual inflation, as defined in its economic context, did not happen in the time frame you indicate.

 

[fromderinside]

Inflation is defined as a general rise in the price of goods. This is indeed impossible to measure. CPI is an index that measures the price of a specific basket of goods that is deemed to be representative of what a consumer would buy. There are a lot of judgement calls that must go into what is in this basket, and indeed what the price of anything is. Even if I asked for something far simpler such as "what's the price of TVs?" there is no easy answer.

Let me try. Lets set benchmarks at the median individual income. Then measure the change in prices relative to the change in income for that cohort. Looked at that way inflation has been pretty robust over the past 9 years.

Actually this thread seemed to start with the rich showing their muscle by banging on those over whom they had gained advantage. With that I wholly concur.

 

[ksen]

Asset price inflation is a bubble which is why it made no sense when you wrote "inflation and bubbles" above.

There are pros and cons to each type of inflation. Though the problems of deflation are overrated.

I guess if you consider entering another depression as not much to worry about.

Deflation is like a fever in a body, it's used to kill off the underlying disease. And deflation is the self-correcting mechanism if allowed to work. Instead we want to try and stop the recovery because it may take a bit.

Hmmm, and what is the disease we have that requires deflation to cure?

 

[fromderinside]

Someone's saying we should apply cryonics to the economy?

 

[ksen]

apparently

 

[coloradoatheist]

But what we had was inflation in one major sector

I saw what you did there, you redefined inflation as a rise in the price of X.

Sure, if you want to redefine inflation, we could call that inflation, but then the word loses its context with regard to fluctuations in the value of currency. The data posted shows that actual inflation, as defined in its economic context, did not happen in the time frame you indicate.

You can have inflation in certain sectors along with deflation in other sectors so general inflation is stable. But it's the effect on the economy of specific changes in inflation in specific areas that are important.

 

[dismal]

Inflation is defined as a general rise in the price of goods. This is indeed impossible to measure. CPI is an index that measures the price of a specific basket of goods that is deemed to be representative of what a consumer would buy. There are a lot of judgement calls that must go into what is in this basket, and indeed what the price of anything is. Even if I asked for something far simpler such as "what's the price of TVs?" there is no easy answer.

Let me try. Lets set benchmarks at the median individual income. Then measure the change in prices relative to the change in income for that cohort. Looked at that way inflation has been pretty robust over the past 9 years.

Actually this thread seemed to start with the rich showing their muscle by banging on those over whom they had gained advantage. With that I wholly concur.

Well, as I mentioned inflation is defined as an increase in the general level of prices. It would be incorrect to measure inflation versus the price of labor because labor is one specific good, not the general level of goods. You could of course measure exactly what you describe and attribute great significance to it, but it isn't "inflation" you are measuring. It's something more like "real purchasing power of the median income individual"

Of course, you'd have to estimate inflation (like they do with CPI) to calculate this metric. Now you're back to the challenges associated with measuring inflation. E.g., what to put in the basket, how to change the basket over time, how to determine what the price of something in the basket is, how to adjust for technological improvements. (e.g., TVs today are far superior in many functions to TVs 10 years ago. To buy the exact same TV you can buy for $800 today 30 years ago would have been impossible. Many people 50 years ago may not have even had a TV and if they did it got 6 channels.)

 

[TV and credit cards]

Actually this thread seemed to start with the rich showing their muscle by banging on those over whom they had gained advantage. With that I wholly concur.

It never ceases to amaze me how some folks can latch on to the least significant aspect of a thread and run with it, stepping in minutiae the whole way.
Why not just go with appreciation and depreciation and call it done.

 

[KeepTalking]

I saw what you did there, you redefined inflation as a rise in the price of X.

Sure, if you want to redefine inflation, we could call that inflation, but then the word loses its context with regard to fluctuations in the value of currency. The data posted shows that actual inflation, as defined in its economic context, did not happen in the time frame you indicate.

You can have inflation in certain sectors along with deflation in other sectors so general inflation is stable. But it's the effect on the economy of specific changes in inflation in specific areas that are important.

http://dictionary.reference.com/browse/inflation?s=t

inflation
noun
1. Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).

(emphasis mine)

Words. They have meanings.

 

[coloradoatheist]

You can have inflation in certain sectors along with deflation in other sectors so general inflation is stable. But it's the effect on the economy of specific changes in inflation in specific areas that are important.

http://dictionary.reference.com/browse/inflation?s=t

inflation
noun
1. Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).

(emphasis mine)

Words. They have meanings.

And Wikipedia has an article on asset price inflation

http://en.wikipedia.org/wiki/Asset_price_inflation

I can also find a fed reserve paper that talks about the role of wage inflation.

 

[Canard DuJour]

http://dictionary.reference.com/browse/inflation?s=t

inflation
noun
1. Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).

(emphasis mine)

Words. They have meanings.

And Wikipedia has an article on asset price inflation

http://en.wikipedia.org/wiki/Asset_price_inflation

I can also find a fed reserve paper that talks about the role of wage inflation.

so..?

 

[KeepTalking]

http://dictionary.reference.com/browse/inflation?s=t

inflation
noun
1. Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).

(emphasis mine)

Words. They have meanings.

And Wikipedia has an article on asset price inflation

http://en.wikipedia.org/wiki/Asset_price_inflation

I can also find a fed reserve paper that talks about the role of wage inflation.

Nice wikipedia article you have there. Too bad wikipedia even thinks it's crap:

This article has multiple issues. Please help improve it or discuss these issues on the talk page.
This article may need to be rewritten entirely to comply with Wikipedia's quality standards. (November 2010)
This article needs attention from an expert on the subject. (April 2009)
This article needs additional citations for verification. (October 2007)

But even this crappy wikipedia entry knows you are wrong:

As inflation is generally understood and perceived as the rise in price of 'ordinary' goods and services, and official and Central bank policies in most of today’s world have been expressly directed at minimizing 'price inflation', assets inflation has not been the object of much attention or concern.

I also understand that balloons can expand through inflation, but that has nothing to do with the topic at hand.

 

[coloradoatheist]

The issue is whether or not the Fed should be more cautious on inflation considering they've missed the ball in the last decade. They were too late in 2007 and I think they are worried about being late again.

 

[SimpleDon]

No, measuring inflation is actually pretty easy. It is nothing but price increases year to year. Prices are easy to track.

It's not, it's an art form. The issues that are an art, are what goods to throw in the basket, where to measure those prices, how to weight the items in the basket, how to measure the product itself, and when to replace the items in the basket. The 60s didn't even have Internet, cell phones, color TV, etc, but we supposedly we can say its easy to compare? ...I can give examples of each and the issues. It's been known to overstate inflation over the long run.

It doesn't much matter what goods are in the basket as long as you maintain the same goods. Once again, you are not trying to measure an absolute value, you are measuring the change from year to year. Inflation is a general increase in prices. You want to avoid volatile commodities like oil and a lot of food stuffs like coffee, because they will take sudden jumps that will reduce the value of the index over the short term. But every time someone thinks that they have come up with a better consumer price index it is tested against historical data and after an initial blip correction they quickly revert to the same year to year price increase, inflation, as the current CPI. As you would expect it to do.

And new products like computers in the 1980's or more recently, smartphones aren't included because their prices are volatile when they are first introduced.

And yes, people who have to pay based on the CPI naturally feel that it overstates inflation. But any time that they have tried to come up with a better CPI they have failed to prove the point. Once again, after a short correction the improved index invariably returns to tracking the same as the current CPI. So that the people who believe that the CPI have resorted to just repeating over and over again very loudly that the CPI overstates inflation, in the hopes that people who hear it often enough will come to believe that the falsehood is the truth. Obviously it works with people who don't understand what is being measured and how it is being measured.

With the internet we are now capable of tracking the prices of almost everything in almost real time, certainly, day by day. And as you would expect, it shows that the current CPI is representative of the inflation that consumers face and the core inflation index that is used to set interest rates is a good representation of core inflation that providers of goods and services face. MIT is doing this research with a crawler that checks prices on the internet daily. Try searching for 'MIT inflation research'or something like it.

 

[dismal]

It doesn't much matter what goods are in the basket as long as you maintain the same goods. Once again, you are not trying to measure an absolute value, you are measuring the change from year to year.

But they don't maintain the same basket. They shift it constantly to reflect what they think people are buying. In 1950 people didn't have cell phones or cable TV bills.

 

[SimpleDon]

Asset price inflation is called "Capital Gains" and is considered a good thing, so much so that we have tax advantages to encourage it. And wage and commodity price inflation is considered to be a bad thing so much so that we manipulate the whole economy through the mechanism of setting interest rates to try to avoid it.

The wealthy profit from inflation, but they are the ones who want to have inflation tightly controlled.

Go figure.

As we found out in the last decade, asset price inflation can be very bad. There are pros and cons to each type of inflation. Though the problems of deflation are overrated.

Yes, asset bubble are bad because of the problems that they cause when they pop. And yet we continue to encourage and reward asset price inflation, capital gains.

The continual chain of one asset bubbles after another also tells us something else too, that there is too much capital available than the economy can use in productive investments, investments in production facilities to produce more products or to produce the number of current products more efficiently.

Capitalism doesn't handle deflation very well and it has adapted quite well to inflation. There is no reason to willing embrace deflation.

 

[coloradoatheist]

It's not, it's an art form. The issues that are an art, are what goods to throw in the basket, where to measure those prices, how to weight the items in the basket, how to measure the product itself, and when to replace the items in the basket. The 60s didn't even have Internet, cell phones, color TV, etc, but we supposedly we can say its easy to compare? ...I can give examples of each and the issues. It's been known to overstate inflation over the long run.

It doesn't much matter what goods are in the basket as long as you maintain the same goods. Once again, you are not trying to measure an absolute value, you are measuring the change from year to year. Inflation is a general increase in prices. You want to avoid volatile commodities like oil and a lot of food stuffs like coffee, because they will take sudden jumps that will reduce the value of the index over the short term. But every time someone thinks that they have come up with a better consumer price index it is tested against historical data and after an initial blip correction they quickly revert to the same year to year price increase, inflation, as the current CPI. As you would expect it to do.

And new products like computers in the 1980's or more recently, smartphones aren't included because their prices are volatile when they are first introduced.

And yes, people who have to pay based on the CPI naturally feel that it overstates inflation. But any time that they have tried to come up with a better CPI they have failed to prove the point. Once again, after a short correction the improved index invariably returns to tracking the same as the current CPI. So that the people who believe that the CPI have resorted to just repeating over and over again very loudly that the CPI overstates inflation, in the hopes that people who hear it often enough will come to believe that the falsehood is the truth. Obviously it works with people who don't understand what is being measured and how it is being measured.

With the internet we are now capable of tracking the prices of almost everything in almost real time, certainly, day by day. And as you would expect, it shows that the current CPI is representative of the inflation that consumers face and the core inflation index that is used to set interest rates is a good representation of core inflation that providers of goods and services face. MIT is doing this research with a crawler that checks prices on the internet daily. Try searching for 'MIT inflation research'or something like it.

And there is a reason why they all have their challenges. It's because its an art form not a science. Dismal asked an easy question about something simple. TVs. How do you calculate the utility increase values of what TVs do? And TVs are something simple, unlike a comparison of healthcare or education. And you say they leave out important things like how much computers or TVs have improved. So when they come out with things how productivity and inflation have split, looking at the measures and seeing if they might be off, is a good thing.