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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

#421

Post by ben_w »

latency-guy2 wrote: post #418
ben_w wrote: post #393

Earlier quoted context omitted.

Does your understanding of reasoning consist solely of the dichotomy "every position is either a QED or a strawman"?

Does yours? > When every example you have of X is Y, it's not a "strawman" to say "all X are Y" — when you're wrong like that, it's a black swan. Either way, I don't appreciate you putting words in my mouth, I hope you don't go around proclaiming you're the arbiter of all that's right in the world.

> Does yours?

The very thing you quoted demonstrates that mine allows for people to make errors without condemning them as deliberately weak setups.

> I don't appreciate you putting words in my mouth

If you do not like how your words are perceived by others, you should consider choosing them more carefully.

Despite your lack of appreciation, this comment is one which I am still only able to read in a way which suggests that you are stuck with this false dichotomy:

> No it doesn't, user exclaims their ignorance and your follow up emboldens their ignorance does not make a QED.

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

#422

Post by randomdata »

tsimionescu wrote: post #217
randomdata wrote: post #137

Earlier quoted context omitted.

> No, "we" did not pick it, someone else picked it "on our behalf" With a gun to your back, eh? We can use whatever source of inflation we want. Nobody is selecting for us. But, as it happens, CPI is the one we've chosen as the default. If we change our minds, we don't have to default to it forevermore. It's up to us. > Are you blaming others for the way you think? I don't think. You do enough of that for all of us.…

People discuss inflation because everyone from the Economist to Yellen to the President brings up inflation numbers whenever people start feeling their COL increase, or when people demand better state services etc. It is one of the most widely publicized economic indicators, along with GDP, unemployment rate, and foreign debt. But in many of these discussions, it is deliberately being presented as equivalent to COL,…

> it is deliberately being presented as equivalent to COL

It kind of is. That's what makes it confusing, I suppose.

If you buy a house of equal value as compared to 60 years ago, then the amount in dollars you will pay, when adjusted for inflation, will be equivalent to 60 years ago (within some margin of error; inflation is impossible to calculate perfectly). If we live exactly like they did in 1960, then inflation and the change in cost of living are the same thing.

But, people expect more today. As mentioned in several comments up-thread, take housing: They are bigger, safer, more energy efficient, more attractive, more comfortable, etc. Alongside that, the married family unit is quickly dying – people are more likely to be single nowadays, so we place more value on being able to live alone. Land is more valuable too. This is particularly noticeable anywhere near agricultural areas, where climate instability and more mouths to feed in the world has made food more valuable, making farmland more valuable, making urban sprawl out into the farmland more expensive. It goes on and on and on. So, even if the dollar was of constant value, you would unquestionably paying more for a house today as compared to in the past. But you're getting more! People are willing to pay more, in constant dollars, because it is worth it.

Only on the dollar side are you getting less. The so-called 'hidden tax'. This is what inflation tries to find. If you are a politician speaking to the people, especially on a national scale, this is the only thing in your control, the only thing that is relevant to you. People choosing to buy bigger and better things is not really of your concern. Why shouldn't someone be able to buy something nicer if they want to?

> Given that a word is defined by what the majority of the people using it mean by it

In the absence of any other definition, that is true. If a speaker defines a word, though, then that new definition takes force while they are speaking. And economists and the President have most definitely provided a specific definition for "inflation".

> I think inflation in common English is closer in meaning to COL than to the technical economics term

I'm quite sure the most common definition is "that single number they talk about on the news", which is equivalent to CPI, which is most definitely not a cost of living measure.

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

#423

Post by kalkin »

mike_hearn wrote: post #239
kalkin wrote: post #192

Interesting that the article doesn't mention what seems to be an obvious takeaway if you believe that interest rates explain the gap between CPI and sentiment: raising interest rates to fight inflation will make people feel inflation is worse. I'm suspicious that this isn't mentioned because Summers and Roy are inflation hawks who've advocated the Fed raise rates and the alleged fact that people will experience this…

It does seem to say that: As the debt increases, the federal government has to borrow more money from U.S. and foreign investors. But as would-be lenders to the U.S. see America as increasingly insolvent, investors will demand higher interest rates to lend us that money. Higher rates of government borrowing lead to higher rates for home mortgages, credit cards, student loans, car loans, and every other form of borrow…

This talks about higher interest rates due to investors being reluctant to purchase US government debt, which is not something we've observed recently. It doesn't talk about higher interest rates due to deliberate action by the Federal Reserve, which is something we've observed recently. Mortgage rates aren't up because of debt, they're up because the Fed raised rates sharply 2022-3, as you can find on a different portion of the Forbes website: https://www.forbes.com/advisor/investing/fed-funds-rate-hist...

I'd actually missed or forgotten the paragraph you quote, but in context it seems pretty disingenuous, using a hypothetical which smoothly transitions to present tense to imply that the debt bogeyman is to blame for what Roy knows very well are actually, in the last few years, consequences of attempts to combat inflation. This only makes me more doubtful of his intellectual honesty.

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

#424

Post by tonymet »

czhu12 wrote: post #375
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…

As a counter point, this post by Matthew Yglesias might be interesting. Basically makes the case that the standard of living today is significantly higher than back then, and we wouldn’t be okay living today like we did back then. https://www.slowboring.com/p/nostalgia-economics-is-totally-...

sure but when you add it up it doesn't feel like much. an additional car and some luxuries.

And it doesn't account for qualities that have degraded. it assumes that since we have more possessions that life is better.

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

#425

Post by Dylan16807 »

wakawaka28 wrote: post #419
Dylan16807 wrote: post #416

Earlier quoted context omitted.

> Person 1: Has $5k in cash. Person 2: Has $5k in cash and a house that is paid for, worth $100k. Yeah the guy that has a paid-for house and zero stocks loses out asset-wise. That's a weird-ass balance of assets though. > Ok so yes, if your stocks outperformed inflation somehow Well again, I was talking to someone else, using their inflation number of 30% as the basis of my comment. Stocks objectively rose by a lot m…

>Yeah the guy that has a paid-for house and zero stocks loses out asset-wise. That's a weird-ass balance of assets though. What I'm trying to tell you is that stocks are assets too! If they went up due to inflation, that's not "profit". It just takes more weaker dollars to buy the same stocks again. >Stocks objectively rose by a lot more than 30%. I don't want to argue with you about what actual inflation was. Again,…

> What I'm trying to tell you is that stocks are assets too! If they went up due to inflation, that's not "profit". It just takes more weaker dollars to buy the same stocks again.

Let me quote the original post again.

"the money I worked so hard to earn now buys 30% less"

If your $1000 becomes $1600, and prices went up 30%, then you can buy more stuff then before.

I don't care what you define profit as.

(And if you say something about how you can buy fewer stocks, that doesn't matter. Number of shares is not an important number, only how many dollars of shares you have.)

> You didn't actually address it because you keep missing the point. Number goes up != profit.

The comment I replied to didn't use the word profit, and I didn't use the word profit in my reply. You brought the word profit into the conversation. I didn't use the word profit the way you wanted, I guess. So I will stop using the word profit. Problem solved.

> That's a weak ass point, bro. Lots of people have fixed incomes, or otherwise can't demand salary hikes and get them in a timely manner. Wages always trail inflation, and the official cooked numbers are used to gaslight employees into taking less.

You mentioned fixed incomes increased based on official CPI numbers earlier, right? That's enough to prove the point I was making. The cost of living adjustment just has to be more than 0 for my argument to be correct.

Lagging doesn't affect my point as long as the lag is less than four years. Gaslit too-small numbers don't affect my point as long as the gaslit numbers are still above 0.

> If you're just trying to argue that people have ways of attempting to cope with inflation, you can stop now. I agree with that. What I object to is the attitude of "it's not so bad" that you're offering up. Inflation is bad and there's no real escape for most people. Our lives will really suck if inflation gets (more) out of hand.

No, that's not my point at all.

Let's have an example number. For this example let's pretend prices went up 30%. If I say "relative to your income and savings, you're paying 25% more", I'm not saying "it's not so bad". That situation is really bad. I'm just saying it's not 30%.

And it's important to realize that those numbers are different if we want to do accurate calculations about inflation. I'm not pointing out the difference for the sake of pedantry.

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

#426

Post by kasey_junk »

wakawaka28 wrote: post #402
kasey_junk wrote: post #378

Earlier quoted context omitted.

> Have you ever seen an old 2x4? This isn't "large beam" but it's obviously higher-quality than new 2x4s. The 2x4 was decreased in size below 2x4 in the 1920s because shipping costs started dominating lumber prices because we’d depleted the forests near the cities where demand was greatest. It was further reduced during the second world war because building of necessity became standardized and again shipping volume w…

>The US forest labs did tons of tests on this in the 1920s fwiw proving there was no quality difference. Lol if you see old 2x4s and new 2x4s first-hand you'll know immediately that this is wrong. >Now there are many fine homes left from prior to these changes, but there are many many more crap homes that are gone because they weren’t capable of lasting. These are the homes you should be comparing to the average home…

I’d respectfully suggest you go look at the forest lab reports before just dismissing them. Literally, it’s public domain, we spent tons of money on the research and your vibes about how the lumber looks compared to the structural tests they ran might not hold up.

The “simple” homes you’ve seen that have tongue in groove planks or solid wood floors were the exception in housing. It was literally the very good stuff. Most housing prior to ww2 had dirt floors! Post ww2 it was concrete slab. Solid brick housing was a huge luxury item. Most housing in the US was wood plank.

In cities solid brick apartment buildings were more common prior to ww2, but they’d have aesthetic brick in the front and “common” brick on the sides. Interior walls would just be the exterior wall. Dry wall and insulation was effectively unheard of.

You are literally describing survivor bias.

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

#427

Post by tonymet »

cyanydeez wrote: post #397
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…

I believe in 1963, black people were still second class citizens. Hard to believe this example is worth it's weight in freedom units per capitalist product. The reality is the economy and government were weaponized to enforce the lost of freedom to discriminate.

inflation makes all american's poorer, especially black americans

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

#428

Post by 542458 »

throw0101c wrote: post #339
542458 wrote: post #212

Earlier quoted context omitted.

If the CPI was designed to make the government look good it wouldn’t use a modified Laspeyres index which introduces overestimation bias by assuming substitution does not happen between basket adjustments. It would be trivial to use a different index type which introduces the opposite bias, but they don’t.

> It would be trivial to use a different index type which introduces the opposite bias, but they don’t. What would be an example(s) of this different type of index? Do you know of any (online?) resources that explain these differences about different types?

The Paasche index would be the alternative to the indexes used today that would tend to understate inflation. It is not commonly used however. If you wanted to be move clever you could use the Fisher index or Marshall–Edgeworth index, which would give lower inflation values than the methods commonly used today while also being easier to justify since you can argue that you believe they’re more accurate than other methods.

I did make a mistake in my comment above - I said that we use a Laspereys index, but we actually use a Lowe index, which is modification to the Laspereys formula.

The “Formal Calculation” section of the Wikipedia article on price indexes describes all of these: https://en.m.wikipedia.org/wiki/Price_index

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

#429

Post by mike_hearn »

kalkin wrote: post #423
mike_hearn wrote: post #239

Earlier quoted context omitted.

It does seem to say that: As the debt increases, the federal government has to borrow more money from U.S. and foreign investors. But as would-be lenders to the U.S. see America as increasingly insolvent, investors will demand higher interest rates to lend us that money. Higher rates of government borrowing lead to higher rates for home mortgages, credit cards, student loans, car loans, and every other form of borrow…

This talks about higher interest rates due to investors being reluctant to purchase US government debt, which is not something we've observed recently. It doesn't talk about higher interest rates due to deliberate action by the Federal Reserve, which is something we've observed recently. Mortgage rates aren't up because of debt, they're up because the Fed raised rates sharply 2022-3, as you can find on a different po…

But the biggest "investor" in US government debt is the Fed, so I don't quite follow how you can separate the two things here. And the other investors are using money that was ultimately issued into existence via lending against reserves, and the Fed controls interest rates by issuing or withdrawing high powered money. And the money the government spends after borrowing it is re-deposited back into the banking system, raising their reserves and letting them issue more loans, further increasing the size of the monetary base and therefore inflation.

Given that it's all connected I don't quite follow why you are cleanly dividing them here.

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

#430

Post by [deleted] »

tzekid wrote: post #362
jlmorton wrote: post #300

Earlier quoted context omitted.

> McDonalds burgers were 15¢. Okay, it was the McDonald's hamburger that seems to have been $0.15 in 1963. That is $1.53 in CPI-inflated 2024 dollars. The cost today is $2.19. That's about a 0.6% difference in the compounding inflation rate over 61 years.

Isn't using compounding inflation rate on top of CPI-inflated dollars double counting? It looks and feels like 40+% to me and everybody else

[deleted]
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