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What used cars tell us about the risk of too much inflation hitting the economy

washingtonpost.com

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Re: What used cars tell us about the risk of too much inflation hitting the economy

#11

Post by anm89 »

credit_guy wrote: post #4
seibelj wrote: post #2

My grocery bill is up 40% from pre-pandemic and I shop at the cheap grocery store. I buy basically the same stuff as I have for the past 10 years. Yet the government claims inflation is minimal. Combined with the value of my property rising and my 401k, I refuse to believe inflation is what the government claims. Huge scam going on here. The government has no incentive to say CPI is rising because that would require…

> The government has no incentive to say CPI is rising Ok, maybe the government has certain incentives, but how exactly do you propose the CPI is manipulated? The guys doing the actual calculation receive a government salary that is fixed, they don't get any bonus linked to the outcome of the measurement. Their bosses don't get a bonus based on how low the CPI comes out either. In fact nobody in the government gives…

> The guys doing the actual calculation receive a government salary that is fixed, they don't get any bonus linked to the outcome of the measurement. Their bosses don't get a bonus based on how low the CPI comes out either.

Assuming everyone always stayed in the same job position, this might be true, but advancement within the system is frequently based on whether your work is producing the desired results so when you treat this as a multi round game, their salary level can be tied to the degree which the data they produce conforms to the desired narrative.

Re: What used cars tell us about the risk of too much inflation hitting the economy

#12

Post by anm89 »

ArkanExplorer wrote: post #3
seibelj wrote: post #2

My grocery bill is up 40% from pre-pandemic and I shop at the cheap grocery store. I buy basically the same stuff as I have for the past 10 years. Yet the government claims inflation is minimal. Combined with the value of my property rising and my 401k, I refuse to believe inflation is what the government claims. Huge scam going on here. The government has no incentive to say CPI is rising because that would require…

Its amazing the game we are going through just to avoid fixing the pension system (ie. reducing pension payments and increasing retirement ages to sustainable levels).

I think you are underestimating how severely in the hole many our pension systems are and how much of a political non starter it is to suggest that those pensions can't be paid.

One does not simply fix the pension system.

Re: What used cars tell us about the risk of too much inflation hitting the economy

#13

Post by [deleted] »

ArkanExplorer wrote: post #3
seibelj wrote: post #2

My grocery bill is up 40% from pre-pandemic and I shop at the cheap grocery store. I buy basically the same stuff as I have for the past 10 years. Yet the government claims inflation is minimal. Combined with the value of my property rising and my 401k, I refuse to believe inflation is what the government claims. Huge scam going on here. The government has no incentive to say CPI is rising because that would require…

Its amazing the game we are going through just to avoid fixing the pension system (ie. reducing pension payments and increasing retirement ages to sustainable levels).

[deleted]

Re: What used cars tell us about the risk of too much inflation hitting the economy

#14

Post by anm89 »

PebblesHD wrote: post #6

It’s a similar story in Australia, leaving me constantly wondering what exactly CPI or inflation is supposed to measure. Cost of housing, both rented and especially to buy, are up astronomically, food costs about the same but packages are getting smaller, transport costs are increasing, yet the reporting from our central banks is saying all is well and inflation is low. Even if the purpose of their measurement is not…

The Fed's mission is to control inflation and unemployment. Note how the two most ridiculous fudged statistics published by the US government are inflation and unemployment.

Re: What used cars tell us about the risk of too much inflation hitting the economy

#15

Post by perl4ever »

credit_guy wrote: post #4
seibelj wrote: post #2

My grocery bill is up 40% from pre-pandemic and I shop at the cheap grocery store. I buy basically the same stuff as I have for the past 10 years. Yet the government claims inflation is minimal. Combined with the value of my property rising and my 401k, I refuse to believe inflation is what the government claims. Huge scam going on here. The government has no incentive to say CPI is rising because that would require…

> The government has no incentive to say CPI is rising Ok, maybe the government has certain incentives, but how exactly do you propose the CPI is manipulated? The guys doing the actual calculation receive a government salary that is fixed, they don't get any bonus linked to the outcome of the measurement. Their bosses don't get a bonus based on how low the CPI comes out either. In fact nobody in the government gives…

I don't want to encourage any conspiracy theories, but on the topic of incentives, there are a few at a higher level than the government employees you're thinking of.

One is that a number of governments, including the US, UK, Canada, and Australia, issue bonds linked to inflation. That is, as I understand it, they return a fixed amount over the measured inflation from some index. In other words, understating inflation would reduce the borrower's (the government's) payments.

Another is that Social Security in the US (and maybe similar things elsewhere) is periodically adjusted for inflation, so that the recipients don't lose purchasing power. Again, if inflation were understated, then the government would save money.

There might be other incentives to overstate inflation; the above is just what came to mind, so I am not implying that there is an overall pressure to understate inflation like people tend to claim without evidence. I wouldn't think there are that many inflation linked bonds compared to regular ones.

Ideally the people at or near the top who may have incentives to distort things cannot do it because the low-level bureaucrats keep on doing their jobs. But it hardly seems guaranteed at all times in all places.

Re: What used cars tell us about the risk of too much inflation hitting the economy

#16

Post by credit_guy »

perl4ever wrote: post #15
credit_guy wrote: post #4

Earlier quoted context omitted.

> The government has no incentive to say CPI is rising Ok, maybe the government has certain incentives, but how exactly do you propose the CPI is manipulated? The guys doing the actual calculation receive a government salary that is fixed, they don't get any bonus linked to the outcome of the measurement. Their bosses don't get a bonus based on how low the CPI comes out either. In fact nobody in the government gives…

I don't want to encourage any conspiracy theories, but on the topic of incentives, there are a few at a higher level than the government employees you're thinking of. One is that a number of governments, including the US, UK, Canada, and Australia, issue bonds linked to inflation. That is, as I understand it, they return a fixed amount over the measured inflation from some index. In other words, understating inflatio…

> people at or near the top who may have incentives to distort things

But who are those people? The Chairman of the Fed? The Secretary of the Treasury? The President? Let's say the US Government ends up paying $10 BN more on the inflation-linked bonds because of the CPI, how exactly will any of the 3 top-level people listed above going to suffer? Maybe the President does not get re-elected if the deficit is too high? Ha-ha, good joke, after years of trillion dollars deficits, does it look like the voters give a damn?

Ok, maybe I went to high up. Maybe it's people in the second echelon. Or third. Why would any of these guys care how much Uncle Sam pays on the inflation linked bonds, or what the balance sheet of the Social Security Administration looks like? People on the private side often have their compensation linked to the performance of their company (for example by being partially paid in equity), but there is noting similar on the Government side.

So, again, why would any Government employee indulge in any number cooking? What would be their upside?

Re: What used cars tell us about the risk of too much inflation hitting the economy

#17

Post by sjg007 »

evanlivingston wrote: post #7
seibelj wrote: post #2

My grocery bill is up 40% from pre-pandemic and I shop at the cheap grocery store. I buy basically the same stuff as I have for the past 10 years. Yet the government claims inflation is minimal. Combined with the value of my property rising and my 401k, I refuse to believe inflation is what the government claims. Huge scam going on here. The government has no incentive to say CPI is rising because that would require…

This is the same realization I had recently. The value of my house is likely up 15% from last year. My investments grew 20%, my income went up, getting food from any restaurant seems to cost at least $40 for two people, hard to find a bar of chocolate under $4, cup of coffee likewise. There is very little telling me my dollar today is only 1.5%-2% less valuable than last year.

You can get a cup of coffee at McDonald's for $1. Medium starbucks is ~$2 And obviously it's even cheaper if you make it yourself. I'm not sure what chocolate you buy but I find cadburys dairy milk for $2 or so. Hersheys has a line of chocolate bars at that price point too. You can buy that in bulk too I guess to be even cheaper.

Re: What used cars tell us about the risk of too much inflation hitting the economy

#18

Post by evanlivingston »

sjg007 wrote: post #17
evanlivingston wrote: post #7

Earlier quoted context omitted.

This is the same realization I had recently. The value of my house is likely up 15% from last year. My investments grew 20%, my income went up, getting food from any restaurant seems to cost at least $40 for two people, hard to find a bar of chocolate under $4, cup of coffee likewise. There is very little telling me my dollar today is only 1.5%-2% less valuable than last year.

You can get a cup of coffee at McDonald's for $1. Medium starbucks is ~$2 And obviously it's even cheaper if you make it yourself. I'm not sure what chocolate you buy but I find cadburys dairy milk for $2 or so. Hersheys has a line of chocolate bars at that price point too. You can buy that in bulk too I guess to be even cheaper.

No doubt, these are all purchases I don't actually make with any regularity. But it seems to me like the prices you listed are outliers. Hershey's has cheap chocolate, mcdonalds has cheap coffee, but surely we don't take the lowest price as an example of what those things cost. If 90% of the sellers of coffee charge about $4 for a cup of coffee, can we assume that's roughly the price of coffee?

Re: What used cars tell us about the risk of too much inflation hitting the economy

#19

Post by joelwilliamson »

another_comment wrote: post #9
PebblesHD wrote: post #6

It’s a similar story in Australia, leaving me constantly wondering what exactly CPI or inflation is supposed to measure. Cost of housing, both rented and especially to buy, are up astronomically, food costs about the same but packages are getting smaller, transport costs are increasing, yet the reporting from our central banks is saying all is well and inflation is low. Even if the purpose of their measurement is not…

>> I think it might be time to define a new metric that more closely reflects the actual cost of living. We had different inflation stats back in the day. The US government has been slowly changing them. This guy uses the old official methodology to calculate inflation today. He gets way higher inflation using the old methodology and plugging in todays numbers. https://en.wikipedia.org/wiki/Shadowstats.com There is a…

The Shadowstats methodology is to take BLS CPI and add 3%.

If your theory about what's wrong with CPI is "BLS is subtracting 3% from the true value" that is a useful fix. If you're concerned about the basket of goods they use, or deflators for quality improvements, or substitution effects, or any other technical concern it isn't clear that Shadowstats provides any value.

Re: What used cars tell us about the risk of too much inflation hitting the economy

#20

Post by perl4ever »

another_comment wrote: post #9
PebblesHD wrote: post #6

It’s a similar story in Australia, leaving me constantly wondering what exactly CPI or inflation is supposed to measure. Cost of housing, both rented and especially to buy, are up astronomically, food costs about the same but packages are getting smaller, transport costs are increasing, yet the reporting from our central banks is saying all is well and inflation is low. Even if the purpose of their measurement is not…

>> I think it might be time to define a new metric that more closely reflects the actual cost of living. We had different inflation stats back in the day. The US government has been slowly changing them. This guy uses the old official methodology to calculate inflation today. He gets way higher inflation using the old methodology and plugging in todays numbers. https://en.wikipedia.org/wiki/Shadowstats.com There is a…

>I think inflation is definitely higher than reported.

I don't, and it's pretty straightforward why. You can argue about how high inflation was over the past year and about technical details. But if you think it's significantly and systematically off and has been for a long time, then it would compound and make a big difference.

Back when my sense of "normal" prices was established, a pound of spaghetti was a dollar. The official total amount of inflation in the last twenty years was a little over 50% or a little over 2% a year. I'm confident the official figures are in the ballpark, because if inflation had really been say 5%, then spaghetti would be twice the price it is.

Car prices are also a useful benchmark. A Honda Civic EX is a pretty standard unit of transportation. In 2001, it was $17350, and in 2021, $25495. That's an increase of about 47% vs. official CPI went up about 50%. And notice that we're not accounting for any sort of improvement in the product, such as all the safety equipment, more horsepower, etc. So you can't complain about "hedonic" adjustments.

A funny thing on the Wikipedia page on Shadowstats is:

"Shadowstats has not changed its $175 per year subscription fee since at least 2006"

If there's so much inflation, how come the price of reading about it hasn't gone up?

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