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Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

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Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#61

Post by alephnerd »

Here is the actual paper - https://www.nber.org/papers/w32163

Fundamentally, the argument is "The Cost of Money is Part of the Cost of Living" (as the paper's title states).

The trillion dollar question is whether it really does.

Based on the backtesting done the paper, it spiked extremely high in late 2023, and then drastically fell to 1980s levels.

If we use Summers' argument, then the Reagan era was a high inflation era as well (as the paper itself shows).

Tbf, this is the very reason the CPI was changed. The rate of change of Cost of Goods has fallen, and incomes at the median level has risen, but housing remains expensive.

That said, lower interest rates aren't going to change squat, as the number of houses built has basically crashed to nil after 2008. There is a supply issue and it's not because of zoning - it's because financing dried up after the entire real estate financial sector collapsed in the 2008-11 period.

The Forbes contributer themselves is not a good source, as they gloss over a significant portion of the paper, and their think tank (FREOPP) is partisan [0]

P.S. I am opposed to partisan shilling on both sides of the aisle on policy related subjects. We are all on the same team - America - and we better darn act like it.

Screw the EPI and screw FREOPP.

[0] - https://www.c-span.org/video/?529864-3/avik-roy-freedom-cons...

Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#62

Post by gedy »

adriand wrote: post #33
tonymet wrote: post #16

I recommend people use many different indicators to get a mental model of inflation, and you will notice that CPI does not represent inflation well. The memes of Arby’s 5 for $5 becoming 4 for $10 are more informative than the CPI numbers. Don’t let the shock at the grocery store wear off – it’s real and painful despite what the news tells you. True inflation would measure the amount of prosperity achieved per hour w…

But it’s not like our standard of living has remained static while we need to work more. A lot has changed. In 1960 the average single family home was 1300 square feet, now it’s more than double that, and it’s packed with amazing amenities and entertainment options. What would an iPad cost in 1960? Obviously the question is kind of nonsensical and yet on the other hand, if you were to try and quantify the price of ou…

> What would an iPad cost in 1960

I don't think that the cost of a computer should silently get included into basics like rent for a roof over your head, food, and medical treatment.

Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#63

Post by hklijlyh »

tonymet wrote: post #16

I recommend people use many different indicators to get a mental model of inflation, and you will notice that CPI does not represent inflation well. The memes of Arby’s 5 for $5 becoming 4 for $10 are more informative than the CPI numbers. Don’t let the shock at the grocery store wear off – it’s real and painful despite what the news tells you. True inflation would measure the amount of prosperity achieved per hour w…

[flagged]

Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#64

Post by PKop »

ethbr1 wrote: post #60
PKop wrote: post #51

Earlier quoted context omitted.

Interest expense is a real cost people pay. Why ignore it?

The reason to ignore it would be mechanical: it's more difficult to measure something when the measurement includes a thing that is adjusted by the measurement. For purposes of setting Fed rates, it makes sense to exclude it. For purposes of measuring perceived inflation, it makes sense to include it.

"inflation rate" is a nebulous thing.

Interest expense and interest rates, concretely paid by people like any other expense is not any more nebulous than tracking other expenditures.

We already know the interest rate and various categories of interest expense paid by population. It is just not included. Your rationale sounds very much like "we shouldn't include it because the inflation rate would be higher".

There is nothing mechanically weird about not ignoring a real expense the economy and people bear the cost of.

This isn't touchy feely, this is concrete costs people pay. Not tracking is purely political.

Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#65

Post by throwaway22032 »

I feel as if some variant of this argument pops up constantly and it just comes down to definitions.

Inflation in almost all major economies does not represent the return rate at which your savings will maintain the same value from year to year.

I don't know what it does track - it seems that often there are "corrections" for people lowering their standards (e.g. buying cheaper/less meat, watching movies at home instead of in the cinema, etc).

To me that makes it kind of like some average of how much everyone is spending. I don't personally see any use in knowing that.

Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#66

Post by talkingtab »

The big problem here is the breakdown in trust. If the government uses a figure for inflation that differs dramatically from what common Americans experience, the people conclude that the government is working against them instead of for them.

Many, perhaps most Americans have lost or are losing trust. The problem with this is where do people turn? Biden represents the government as manipulator. Where is the alternative? The truth is that in a choice between Biden and Trump many people have turned to Trump.

It is interesting in a sick way because the human reaction to betrayal is extremely strong. I find in myself a remarkable distaste for Biden. I find myself comparing Biden to President Snow. Not rational, but betrayal will do that to you.

And most concerning is that the problem is not really Biden or Trump. It is about corporations that have taken over our democracy. The most insightful question is: Cui Bono. Who benefits from the laws that are enacted? Corporations. Who uses the courts? Corporations because average citizens cannot afford a lawyer. [If you doubt this, ask yourself how much Microsoft owes in taxes to the American people]. And the Supreme Court? These are the people who decided that Corporations can buy and sell politicians and elections.

The disparity between the profits of Corporations and the daily lives of common American citizens is breathtaking. Who benefits from convincing Americans there is no inflation problem?

Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#67

Post by Cyph0n »

caesil wrote: post #37

I don't really understand the argument at the heart of this article, which is "we should include interest rates in CPI". How do interest rates effect everyday people exactly, other than price inflation on goods and services (which is included separately in CPI)? The only way seems to be interest rates on personal loans and mortgages. So if anything, we should only include interest rates in proportion to how many peop…

> So if anything, we should only include interest rates in proportion to how many people are taking out major loans during the sampled period

It goes both ways: in that case, we should also discount from CPI calculation the effect of sub-3% mortgages, low/zero interest auto loans, forgiven fraudulent PPP loans, etc.

Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#68

Post by abeppu »

> “Alternative measures of inflation that include borrowing costs” account for most of the gap between the experts’ rosy pictures and Americans’ skeptical assessment.

I think the article doesn't actually cover support for this (though I have not read the actual paper), because part of people's skepticism is not based in them doing a parallel calculation. Even people who aren't taking out a large loan often have the sense that inflation has been much worse than official sources state -- and I think part of it is related to cognitive biases where when we're shocked by the high price of a good, it becomes a salient example to us, and it skews our assessment of overall price increases. E.g. I've seen the recent stat that food prices have increased a total of ~25% since before the pandemic -- but if you have a few grocery items that you buy regularly that have doubled in price, you're likely to be skeptical of this.

Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#69

Post by Phiwise_ »

Animats wrote: post #9

Short version: if you include interest rates in the inflation metric, 2022 looked bad.

It's more than just interest: 2022 just might have been the worst non-recession year in (modern, meaning years with acceptable stats) US economic history. Every tranche of net worth FRED tracks fell off a cliff that year, declining in (CPI, so we don't even need this competing metric to come to these conclusions) real terms by more than they did even during the 2020 recession [1], with the rich almost always losing more in absolute terms and the poor almost always losing more relative to their losses in 2020 [2]. If you look closely, you'll even notice that some of the rich lost more during these supposed business-as-usual days than they did during the 2008 meltdown of their moneymaking sector.

It's been pretty shocking to watch this happen, see the months roll on, and still hear basically no wideapread discussion on it in proportion to what has actually happened. We're coming up on two years of just not having an average of ~9% of our wealth we all worked hard to make from recovering from an economic equivalent of universal house arrest any more, and the best one can get a mainstream platform for is something like "possible cost of living concerns". Sure 2008 was worse for specifically the working class, but the working class are also much more sensitive to small changes in prosperity because they're not even in the same order of magnitude of diminishing returns (not to mention that it's pretty much as big a drop for them as the 2001 recession, which was also a quite painful time historically and was certainly seen as a moderate travesty before the perspective of 2008). How long can this dissatisfaction go on without starting a serious effort for acknowledgement and recovery?

[1] https://fred.stlouisfed.org/graph/?graph_id=1317969 [2] https://fred.stlouisfed.org/graph/?graph_id=1326338&rn=637

Re: Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula

#70

Post by nytesky »

tonymet wrote: post #16

I recommend people use many different indicators to get a mental model of inflation, and you will notice that CPI does not represent inflation well. The memes of Arby’s 5 for $5 becoming 4 for $10 are more informative than the CPI numbers. Don’t let the shock at the grocery store wear off – it’s real and painful despite what the news tells you. True inflation would measure the amount of prosperity achieved per hour w…

The “one income household” model of the 50s worked for two reasons.

1) the rest of the world was in ruins, so for 50s-60s US was sole industrial power more or less.

2) artificial labor “scarcity” where POC and women were banned from many occupations. The remaining available labor (ie white men) had more leverage.

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