It feels like I’ve been hearing that this is transitory, there was nothing to worry about. Worrywarts we’re exaggerating… and now the chickens come home to roost.
And, I can understand that coming from the Whitehouse, after all it’s a political liability… but news organizations, economists, journals, Twitter, publications… as if they all just joined a narrative to wish something untrue.
There is no “fourth estate”. That looks to have been a myth to perpetrate unwarranted prestige.
It's more complicated than the headline number. There's a lot of big numbers that are clearly demand/supply issues. Like energy being up 27%, furniture up 17%, used cars up 40.5%, and so on. If I'm doing my math right, that 40.5% increase in used car prices is responsible for 1.6% of the head line number (40.5% * 4.1% weighting). Meaning, if we ignore the increase in used car prices the headline number would be 5.9% instead of 7.5%.
The economy is still reeling from covid and settling on what a "new normal" looks like.
Not sure what the reasoning is here: of course it's a demand/supply issue. There are too many dollars in the economy. Because people have money, they want to buy cars, and houses and furniture etc. Why do you want to ignore car prices? Haven't they always been a part of inflation? Some people say housing and cars should have a bigger weight in the CPI, because that's where a lot of the money goes for a huge number of American families (that and education+healthcare)
> Because people have money, they want to buy cars, and houses and furniture etc. Why do you want to ignore car prices?
In a functioning economy the supply of cars, houses, and furniture etc. would rise to meet the demand preventing a price increase. But they can't due to chip shortages, labor issues, and other assorted supply chain issues. It's a different problem than inflation and requires different solutions.
It also contradicts the "If you didn't get a 7.5% raise you got a paycut" narrative because it's very dependent on what you bought. If you're trying to buy a house, put furniture in it, and get a new to you used car then things got way more expensive. If you already had those things then it didn't.
The question wasn't "is this supply/demand driven?", it was "is this transitory or not?". Items like car prices are likely transitory and will return to pre-covid levels once supply chain issues get worked out later this year and production returns to normal.
Just a nitpick but a return to the mean does not imply a return to pre-Covid levels, although I think we can all agree that sooner or later cars will actually start depreciating in value again.
How would you know that? If say the number of cars went down by 50% and the amount of money in everyone's pocket went up by 100% which would driving the upward price more?
If the supply of cars is down why would that in and of itself drive the price up? Surely there's some flexibility in demand for cars?
It seems like a price increase in any individual item can be explained as a supply problem but every additional item that that gets added to the list is an argument for a money supply problem because on some level every item is substitutable.
I don’t know in the sense that I have exhaustively researched the topic in exacting detail, but I believe it is mostly supply related because of a combination of factors:
1. Global supply chain disruptions are well documented, multiple automakers have had to shutdown factories for lack of parts.
2. Cars prices are increasing much more rapidly than the overall inflation rate. (I believe another comment in this thread said ~40% for used vehicles)
3. Total vehicle sales are still below their pre pandemic levels.
I never said that the money supply isn’t contributing to inflation. But it is quite clear that there is a significant supply problem when it comes to cars.
> Cars prices are increasing much more rapidly than the overall inflation rate
There will always be items that increase in price more than the average. Are you proposing to eliminate all the outliers in each report? In the end, people still need to buy cars, which are more expensive, so the inflation rate should reflect that.
> Because people have money, they want to buy cars
That would be true if we were talking about new cars, but apparently the big rise is in used ones. That is likely due to a combination of factors, with liquidity being only one of them - the others are scarcity from the supply side due to covid, and the sector trying to push a new technology (electric) on masses of conservative consumers.
We've been trying to buy a new vehicle for over a year, with a family member owning a dealership, and still haven't been able to get one.
Our last one, we ordered just before covid, and the 3 month order turned into 13 months.
EV only comes into play because it made new car prices higher in order for companies to meet quotas dictated by CAFE standards, which also raises prices on the used market.
Electric cars are hardly a 'new' technology. The rise in prices is predominantly because of a shortage of new cars which drives consumers to the used market.
It's not a normal market. Unusual chip and supply shortages have made several markets like the one for cars inelastic for traditionally elastic purchases. On such a wide scale you can just say "simple supply and demand" as you're basically just stating "water is wet". It's much more complicated than traditional versions of inflation.
That's exactly OP's point. It's only worrying IF you believe car factories are stuck making less than 2019 numbers for years and years to come
If you believe they'll be able to get back to normal numbers in the next 12 months, you believe inflation will largely go away, maybe even before the midterms
> There are too many dollars in the economy. Because people have money, they want to buy cars
At least wrt cars, isn’t the knock-on pandemic effect by far driving the shortages? (Chips, disruptions in just-in-time, etc) rather than people have more money to spend on them?
Yeah this discussion around inflation feels a lot like gas-lighting.
> Person: My friend was shot!
> Expert: No, he had his heart stop beating. Stop being so uneducated™ and get your information from places that dont spread disinformation™.
> Person: But he is dead!
> Expert: Stop being so racist and anti-science. All the experts agree that his heart is just transitionally not beating. People dying would make us look bad and that is not the case here!
That is how I see the current conversation about inflation. You're supposed to ignore reality and parrot some dumb talking points. A lack of supply and increase in money IS THE LITERAL DEFINITION of inflation. I don't care about technicalities about gas prices and supply chain. If my money cant buy as much stuff as last year, that is inflation.
Close but, no, not really. There's a subtle difference:
"A lack of supply and increase in money" vs "A lack of supply BECAUSE of an increase in money"
So the situation gets muddied a lot when there is a rather large external factor (or, more generally, when society changes). When a global pandemic hits, mouth mask prices skyrocket. This is not inflation.
That makes no sense. With your augmentation, we could say the 1970s oil shock price increases "were not inflation!" because, you know, external factors.
Iran, we have been embargoed, "it's not inflation".
That would be accurate. They were price increases because of war. Same for Iran.
Inflation is not about changes in the world itself. The price of horse carriages has skyrocketed, because they're a luxury niche product now. The price of global travel has dropped to the point that people are semi-seriously suggesting that mach 15 travel by rocket might become a thing. Paris-Sydney in 30 minutes. That's not inflation and has nothing to do with the actions of the central bank.
House prices, by contrast, are inflation driven.
Inflation is a measure of the effect of the evolution of the money supply. It's done so the central bank can adjust course to optimize how smoothly the economy runs.
It is not a measure of how expensive it is for you to drive to the next city. When Washington decides to go to war, that doesn't affect inflation directly. When your city council decides to block the shortest route to the next city, that doesn't affect inflation, even if it doubles your cost to go there.
You want Table 1 in the linked doc. The summary is the things getting more expensive fastest are also things that have lower weighting. In household budget terms, our biggest expenses by far are:
- housing
- health insurance
- childcare
Those have not gotten much more expensive (our health insurance got cheaper this year, housing is flat, childcare had a modest increase). Meanwhile gas for the vehicles costs much more, but comparatively fuel is a minor expense. When we weigh everything for our household, 7.5% seems high.
I think your household may not track with many others. Not disagreeing with your personal number as I am sure they are accurate but for most they are very different.
Housing is sky rocketing across the US. Rents are up over 30% in a lot of markets. Child care is basically free for most people after their kids start elementary school. Groceries are far more expensive than they used to be, I am going to estimate at least 20%. For me a very rough estimate of inflation is probably 15%. Luckily I have a 30 year fixed on my mortgage, if i was renting it would be far more. Rents in my city are up 25% last year and expected to increase a further 20% this year.
Most people, like you, do not rent and are not exposed to this at all. Further, 30% y/o/y rent increases are limited to a tiny minority of cities (I would even suspect 30% is an exaggeration for any major metro).
> Child care is basically free for most people after their kids start elementary school
I can't tell whether this is a troll or not. In case you're serious, consider that school dismissal is in the middle of the afternoon, and generally speaking someone has to get the kids home and occupy them for a few hours. This is of course before holidays, summer break, and extracurriculars.
> Groceries are far more expensive than they used to be, I am going to estimate at least 20%
Your estimate is likely not as accurate as the BLS's estimate of 7.4%. (Caveat: many people who read HN are rich or high earners, and so they may eat different food than most Americans. That food may have increased at a faster rate.)
> Rents in my city are up 25% last year and expected to increase a further 20% this year.
This is why BLS weighs expenses. Neither of us is exposed to this at all.
> Most people, like you, do not rent and are not exposed to this at all.
Perhaps, but if it were generally true, inflation stats would over-reflect it rather than ignoring it; the housing component is entirely rent driven (it reflects actual rents and the rent forgone by homeowners not renting out their homes), so in a situation where rents are increasing but mortgage expenses are flat, it overstates the impact of out-of-pocket housing costs (it does the reverse when purchase/mortgage expenses are increasing faster than rents.)
I agree that arriving the specific component weighting is really difficult, especially alongside the need to make comparisons over time and the changes in household makeup, etc. The concept that housing prices increasing/decreasing rapidly does not change household budgets for most Americans is the salient point that people are missing.
Because of the way shelter costs enter into the CPI, these increases in owned home and rental costs have not yet contributed much to overall inflation.
Our analysis, however, suggests that these higher shelter prices are likely to soon show up more clearly in the monthly CPI, potentially adding several more basis points (hundredths of a percentage point) to monthly inflation than they do now.
If you own your house, your cost did not go up. Most Americans own their homes. That's how to look at it. The inflation has likely been a net good for you if housing costs in your area have increased.
As part of the market, your opportunity costs go up. Meaning you need a higher sale price to offset a higher buying price if you want to move.
Or that locking in that current cost means less inventory on the market.
Housing costs going up across the board is only good if you have a surplus of inventory to sell that doesn’t need immediate replacement. Ie, not your primary home.
People owning only their primary residence are at best breaking even, despite amortizing their (cheaper) purchase price beyond a market increase.
This ignores the linkage to compensation. Broad inflation leads to people earning more. So if you own your home, you break even on the home (ignoring the downstream effect of having more home equity for your heirs).
But you can reasonably expect to be paid more in 2022/2023 than you would have been in those years had inflation stayed on the 2019 trend line. That will, in turn, make it easier for you to pay your mortgage and increase savings. You essentially get a raise to cover the fact that other peoples' housing costs increased*. That's the crux of the benefit.
* yes, some of your expenses increased as well, but the wage increases you receive need to cover the increase in those expenses PLUS housing expenses because market compensation increases for broad categories of workers, not for your specific household budget. So you still get "for free" the housing-linked part of the inflation adjustments to compensation.
As the value of your home goes up, your 'rent' goes up in the form of increased property taxes and depreciation becoming more expensive on the improved land and structures residing on top of the land.
This may seem invisible to you now, but as assesors re-assess your house, you realize how much more you are paying in 'rent' (maintenance) on your house for materials like wood and labor, or you're forced to sell at depreciated value because in 50 years you end up the old folks home or whatever -- sooner or later we all pay rent on the property we own. Basically 'using up' your house is getting more expensive in terms of opportunity cost.
All of that was going to happen, regardless. The only difference is now compensation will ramp up (COL increases will eventually have to match real inflation) and the (bigger) expense of mortgage interest will be smaller as a proportion of income.
Or are you suggesting that inflation will drive wood etc. to be a relatively larger proportion of a homeowner's future expenses? I would strongly disagree with that thesis.
Re-reading your comment, it looks like you're arguing that increasing home values are bad for homeowners. I also strongly disagree with that.
And thus you reveal your flippant dismissal of what's happened as things that were going to happen anyway.
> now compensation will ramp up
Like the compensation of people repairing houses, like electricians and plumbers, of those living on fixed incomes (and everyone else)?
>Re-reading your comment, it looks like you're arguing that increasing home values are bad for homeowners.
Lol straw mans all the way up. Pretty clear you're just trying to drive this towards the most disingenuous take possible, so I guess there's not much point in engaging you further.
Genuinely not straw manning here. Please let me clarify:
>> And thus you reveal your flippant dismissal of what's happened as things that were going to happen anyway.
Yes, I mean that housing prices are going to increase over time regardless (unless we are in a very new phase for the US). I do expect housing prices to be higher in 2042 than in 2022. So between now and then, assessed values and therefore taxes will increase for each property. As a result, people will earn more, even those people I pay directly for services. That's what I meant was going to happen anyway. This argument is about whether it happens in N years or M years. I believe the argument that it will not happen at all (e.g. persistent deflation) is not popular at the moment.
> Like the compensation of people repairing houses, like electricians and plumbers, of those living on fixed incomes (and everyone else)?
Yes, everyone's compensation ramps up. Most people make more today than their job paid in 1980. This is also true for people who have been on fixed incomes like Social Security that entire time. It is especially true for people I pay directly for their services, like the roofers I hired recently. Yes, I understand that I will pay more for their labor in the future.
I also understand that I am part of "everyone else" and therefore eventually we will reach a new, higher, equilibrium of wages. In the new equilibrium, I expect the relationship between the wages professions earn to broadly be preserved. For example, I do not expect the new equilibrium to result in grocery cashiers earning more than electricians. So I am confident that in the new equilibrium, my expense on electricians will shake out roughly where it did in 2018 or 2019 as a fraction of my budget.
> Basically 'using up' your house is getting more expensive in terms of opportunity cost.
I thought this was obvious, but will spell it out. Yes, the use of my house does get more expensive over time. But precisely because I expect my income to at least keep pace with inflation, I do not expect it to become proportionately more expensive than it was when I signed the mortgage.
Consider a person who bought a house in SF for $250k in 1997. That person could still be paying a mortgage whose absolute level was set in 1997 while earning compensation based on 2021 levels. You are correct that to repair/replace the house, they have to do that using 2022 levels. But the house is not 100% of the property value (this is especially in high-cost markets).
You have some good points about the benefits of owning a house and the hedges against some of the risks renters take.
My main point was to disprove the statement:
>If you own your house, your cost did not go up.
This is clearly inaccurate, if nothing else by viewing property taxes and expenses to maintain the house: your 'rent' on the house does go up in this market. It may look invisible to you now, but over the years you're going to notice the higher nominal cost of living in your house.
My housing expense is flat. I own my home, and my housing expense will be predictable (and relatively capped) for as long as that is the case. So yes, my housing cost has been flat.
Yes, the plumber will charge me more. No, you would not be able to determine that if you had my financial records, because I don't spend an appreciable fraction of my income on plumbers (or lawn care, or electricians, or other home services outside of child care).
The same applies to electricity and gas; the expenses are there, but a 10% rise in all of my utilities is still not meaningful in my overall budget. For comparison, I can easily see a 10% swing in annual heating bills based solely on the average temperature during 3 months of the year.
Yes, I am impacted by all the same things you are. But my health insurance expense dropped 3% and that dwarfs all the other category increases. This is why the BLS weighs their basket.
I understood the point entirely, and you are correct that if inflation continues at this rate for decades, what today are small expenses like lawn care will eventually become the dominant term, eclipsing my mortgage. But I would wager we will have bigger problems should that eventuality come to pass.
Also, don't forget that increased inflation also eventually leads to everyone's compensation increasing. As I am in "everyone"," it will net out. If inflation moderates over the next few quarters/years, the likely impact to me is that I will earn more and so my largest expense (which is fixed!) will be proportionally smaller. But yes, I will pay more for plumbers and the like so I will be impacted by the cycle.
> I'm struggling to understand how inflation is only 7.5% when every major line item comprising inflation is up much more than 7.5% over the past year.
They aren't. Food, apparel, medical care commodities, and non-energy services are up less than the overall amount. The things that are up more just get mentioned more because big numbers are newsworthy, small numbers aren't.
Where are you seeing that? Here's the latest CPI [1]. Click "show table" for the full info. Food is at 7%, housing at 4.4%, clothing at 5.3%, etc. I don't have the 2022 weights for each category handy, but here's 2020 [2].
CPI is taken using an average family's basket of goods. If you have different consumption patterns from the average family your effective inflation may differ.
That used car statistic is truly quite staggering. It's pretty frustrating how much of that is initially due to major manufacturer's own misread of the situation too, but no point in crying over spilled milk, right? Anyway...
> "The used cars and trucks index rose 1.5 percent in January, a deceleration from the 3.3-percent increase reported in December." (from your link)
It's good to see that this is slowing down. I was curious so I took it upon myself to gather a few links[0][1][2] with statistics on U.S. and global auto production. I wanted to know what the "old normal" looked like, what kind of drop in production is required to trigger this kind of inflation, and how close we are to getting back to normal. In short, my answers were our manufacturing numbers have been on a slow, steady decades long decline for some time now anyway[0] so I guess it depends on your level of pessimism, a 16-17% drop overall[1] (coincidentally about the same worldwide)[2], and
about halfway back to normal but progress is slow and inconsistent[0]. Everything blew up in March 2020, somehow managed to snap back to normal temporarily in July 2020, and finally proceeded to spend the rest of 2020 and all of 2021 on an increasingly bleak rollercoaster that is just now beginning to rebound (hopefully).
The definition of inflation is nominal changes in prices. This can be caused by supply/demand shocks, which is where the term "transitory" comes from--inflation during a period of economic transition. The alternative to this is persistent inflation, which is largely the result of monetary or fiscal policy, and not due to supply/demand "issues" (well, or you could say, the only market where there is an issue is the currency market)
If we had high persistent inflation, we would expect long term, consistent increases in prices. This is compared to "normal" persistent inflation, which we typically target around 3%. This target is set by the Fed.
If we wanted, we could target 10% inflation on a persistent basis by using monetary policy that was deliberately inflationary.
The argument being made by the government and by the media is that our current inflation (40% for cars, etc) that weighs out to 7.5% is the result of a supply/demand shock, and which must be resolved by working out these short term market inefficiencies/failures.
There are real arguments for monetary inflation (especially wrt asset inflation), but the fact that cars are up 40% and housing vacancy rates are so low and our supply chain is so backed up makes a very tangible case for us being in a transitory period of inflation which can not be dramatically improved by monetary or fiscal policy.
Housing vacancy rates will go up. Landlords and those selling houses just need to keep pushing the price higher until the market will no longer bear it; there is some price at which people will no longer occupy such a high fraction of houses.
I think widespread disbelief of inflation, and hesitancy to embrace the 'new normal' has lead to sticky prices. These sticky prices means some goods and labor is 'cheaper' than it would otherwise be, leading to 'shortages.' In part I explain such low unemployment rate at present due to labor being a couple percentage points cheaper than it was a year or two ago.
I think the point being made is that the portion of inflation caused by used car inflation is likely transient & due to a well-known cause (automakers shut factories due to Covid) that is being remedied. The question all along has been how much of inflation is due to obvious transitory effects like this one.
Vehicles are not only "behind" on supply (which is difficult enough to overcome in an industry that's so dialed in to production capacity that quick bumps in production aren't possible), but they continue to be produced at below normal capacity and so the shortage is increasing, not catching up.
The chip shortage is playing an outsized role here. Vehicles are being delivered with IOUs to come back in a year or two to have chips retrofitted in order to enable options listed on the window sticker. Everything from climate control and heated seats, to wireless phone charging, to autostop/gas saving measures, to lane keeping and collision avoidance. And delivery numbers are still extremely low.
Catching up means either years of bringing up total factory capacity to beyond pre-covid levels and catching up on the chip shortage... or a recession or other event that suppresses demand.
Transient in this sense only applies if we're taking about fractions of a decade, not fractions of a year.
> Transient in this sense only applies if we're taking about fractions of a decade, not fractions of a year.
I don't know the answer to this, but if the choice is either let inflation run hot like this for another couple of years or engineer a recession, is there a clear policy answer? The benefits of a hot economy seem to outweigh the downsides from the perspective of high employment, but perhaps not in other ways.
Just 2 years ago, the worry was whether we would end up in a deflationary spiral and have no real policy levers to exit. Given the lag time for any policy response to take effect, it seems really hard to get correct. I definitely don't envy anyone who's making policy decisions on this.
I think this sort of comment isn't very helpful. This isn't a theoretical discussion: when people discuss this issue they're asking what we should do about the specific demand/supply issues. The answer to that question depends on the details.
To use a ridiculous example, let's say the problem was a surge in the price of Christmas trees. One solution to the problem is to change central bank policy; a second solution is to do nothing and wait until December 26th. Clearly the price increase is caused by demand/supply issues, but it's possible to think more deeply about what's causing the demand and supply and come up with different prescriptions for how to deal with it.
Conversely, I think it's unhelpful to excuse away inflation as supply/demand issue and explain that if you just exclude all the things people buy, inflation really isn't that bad. Inflation in the 70's was also caused by supply/demand issues and problems with supply chains (that's what an oil shock is).
Obviously the specifics determine the appropriate response, but they don't invalidate the headline number. That's the same logic the inflation panic folks used to pretend there was high inflation when there wasn't.
If all you want to do is point at the headline number and go no farther, that’s fine. But it seems fairly pointless unless the goal is just to kvetch about something that’s generally unfortunate. In this thread nobody is denying the headline number, they’re just pointing out that a lot of these effects may cease to exist in the future even if we do nothing else. Hence maybe it’s not something to panic about.
Inflation can be caused by "demand/supply" issues with currency, namely if much more currency is 'printed', currency may become less dear and thus price of goods come up.
Whether you want to apply that to our current situation or not, demand/supply applies to dollars as much as anything else.
The funny thing is that it wasn't that long ago that people were arguing that the pandemic would have a lasting impact in the opposite way.
A popular theory was that rental car companies will dump their inventory, there'd be a glut of used cars, and both used and new car prices would crash as a result.
They overlooked that eventually demand would return and those empty inventories would have to be refilled at a time that was just 12-24 months removed from massive decreases in production. And that it'd correlate with every other industry scrambling for supplies and transportation at the same time.
Yeah used car prices are amazing right now. If I was closer to work I'd sell my car and ride a bike to work and get a little bit more for my car than I paid for it 5 years ago (it was a 1 year old used car at the time). As it stands I'll ride it out for at least another five years or until sanity returns. Friends are being called by dealerships interested in buying back their cars (not trade-ins, straight up cash offers). It has been interesting this past year.
More importantly missed from the CPI calculations are the prices of pinball machines. It seems like the prices on the used market have nearly doubled over the last 12-18 months.
This is actually a more interesting trend than it might appear at first glance.
The prices of _all_ of my hobbies have gone up quite a bit over the past year or so. It seems to be consistent that discretionary/luxury goods are increasing in price significantly faster than the CPI.
Just wait until rents start resetting and catching up. My understanding is that rent inflation is one of the slowest to be factored in because many leases need to expire before it’s inflationary impact is fully represented.
The push towards green energy has reduced investment in coal, oil & gas and pipelines. This has pushed up energy prices. Sustainable energy can't be built fast enough. This is not transitory.
It's because they wrongfully believed that they can manage the expectations of reality to the extent that they can change reality. They are of course wrong, but economics is an ideological backwater farce of a science (I am trained in it). It was a convenient belief, because it allowed central bankers to blame their own citizens, rather than interest rate policy.
Patience. Trying to get ahead of the market will most likely just put you in a bigger hole. There is really no safe haven right now, treasuries pay nothing, inflation is eating savings for breakfast, housing is the worst of all.
Your best bet would be to pick 5-15 uncorrelated assets and spread you investment over those assets and just wait. This would simply be to reduce risk.
I do know what TIPS are, I even own a bit. One problem is that there is a yearly cap to how much you can buy, and its 10,000$. For some people that is all they have, but for others with more assets, it will only be a small piece of the bucket.
Edit: TIPS and other treasury bonds are distinctly different.
> Weeeeellll, tips monocle, you must be uninformed of what TIPS mean, so I will take it upon myself to inform you, lest a know-nothing like yourself gets confused.
TIPS are overpriced because of fixed income fund mandates, moron. I worked in bond sales. You don't have to be such a prick, you know.
Your username checks out. Economics is hardly an ideological backwater of science, but politics might definitely be. Economics simply comes down to cause and effects of different decisions...how those are actually applied in the real work is policy related, and that part is littered with trash.
If the "people" part of economics invalidates all of its assumptions and models, then how useful is it really? Everything beyond intro micro and macro is as pie in the sky as string theory, and motivated academics are also similarly keen to keep that PhD research money hole absorbing all the resources it possibly can.
> Everything beyond intro micro and macro is as pie in the sky as string theory,
That's kind of backward: intro micro and intro macro are the areas of economics most tied to abstract assumptions which are neither grounded in nor consistent with empirical observation (excluding, of course, both work addressing things like hypothetical optimizations and work in overtly ideological rather than empirical approaches to economics, like that of the Austrian school, but neither of those even aspire to describing status quo reality.)
The 'people' part of economics has evolved into what is called behavioral economics. Traditional economics assumes that people will make the ration choice, but that can be a pretty limiting view of the world since people obviously are not always rational. I don't disagree that traditional models and assumptions are not that useful when applied to the real world.
The preferred term is "sectoral". In other words, is it just the increase in gas and used cars, or is it broader? The price of used cars and gas will inevitably drop back down, but wages once raised don't. Summer 2021's inflation was clearly sectoral, but that is changing.
The next question is whether this is a one time bump or systemic? 10% inflation once is one thing, 10% inflation continuously is a completely different thing.
It's very important to get this right, because the only real antidote to inflation is recession. Raising interest rates and raising taxes will stop inflation, but kill the economy. Recession is preferable to stagflation, but nothing else.
And remember there are two sides to the political machinations at work here. A good recession will guarantee that the Republicans take the White House in 2024.
Investment in US tight oil is stagnating, OPEC+ lacks either the desire or capability to increase production, Venezuela's production capacity is still terrible, and rumors are getting quite loud that Ghawar has finally peaked.
EV sales are still far less than 50% of total sales, so net global fuel demand will continue to increase in the face of tight supply.
Barring another severe COVID variant outbreak, I don't see fuel prices declining anytime soon.
And the cool thing about energy prices is they feed forward into the cost of literally everything else in future PPI/CPI prints.
EV sales are over 25% in Europe, over 20% in China, 10% in California. It's far from the majority but remember that price is set at the margin -- supply 99 demand 100 price goes up, supply 101 demand 100 price goes down.
But the biggest factor is that the cost of renewable electricity is dropping fast. And to many industries, they are imperfect substites, so the price of electricity and gas are correlated.
> And the cool thing about energy prices is they feed forward into the cost of literally everything else in future PPI/CPI prints.
Exactly, which is why the forthcoming massive drop in electricity costs has me so excited.
Seems like one should be able to provide evidence one way or another for different explanations of inflation pretty easily, like changes in the correlation of prices across sectors or changes in bond prices or something? I'm not an economist though.
Remember when all those tv hosts were practically salivating over the thought of an recession so as to ensure Trump didn't get reelected?
The political machinations you're touching on are a really disgusting reality of our system. People would love to sacrifice the middle and lower class for the sake of having their party in power.
Edit since I'm getting downvoted, this did happen, and it's gross to see, regardless of what political side you support. I don't want a recession to happen even if my preferred party isn't in power. The people at the bottom are the biggest losers when recessions happen, even if most of the users on this board are largely insulated from the fallout.
it's common sense, if you print a bunch of money and production of goods is flat or actually down due to the pandemic, inflation is going to happen. printing money doesn't magically make more houses appear, so the price of houses go up
Wealth comes from technological innovation improving productivity, not turning on the money printer
I’m not sure I agree. Inflation started rocketing up in April 2021 and if I search google for news articles with the word “transitory” before 2021-06-01, the top two results are “The Fed needs to get real about inflation” and “Inflation: transitory or persistent?”
Obviously there’s some bias there in regards to ranking (as inflation is a highly charged topic so these articles were probably popular for months), but it seems clearly false that media has taken as fact that inflation will be transitory
It was very obvious that it was not transitory. When are people going to stop trusting the fed? They've been toying with people's livelihood and printing money at will devaluing everyone's hard work to benefit a select few.
It's not just the media, too. In academia, the copium may in fact be strongest. Economics programs groupthink toward the same over-idealistic delusions of dynamic stability over a chaotic and unbounded multiplayer game.
> this is transitory, there was nothing to worry about. Worrywarts we’re exaggerating… and now the chickens come home to roost.
Thing is, the recent volatility in inflation is a bigger concern than the actual average number (which is still within historical ranges), and also harder to address via policy responses. 7.5% is a bit scary but it's also just the latest residual. We'd like some more meaningful data before we can tell just how much of this is noise. (AIUI, market forecasts also reflect this outlook: sure, they're up, but not that far up.)
>> It feels like I’ve been hearing that this is transitory, there was nothing to worry about.
Please do understand that probably half the US and much of the world live paycheck to paycheck. They consume everything they earn and zero out at the end of the month. A 7.5% increase in costs isnt necessarily matched by an increase in pay...so that means a lot of pain.
I realize that as technologists, many of us barely consume everything we earn because many of us earn way above average, but that isnt the average reality for people.
Inflation is still mostly doe to energy prices. You get sustained inflation only after inflation expectations become self sustaining: prices up -> wages up -> prices up -> wages up
> It feels like I’ve been hearing that this is transitory
Where? The first couple months of high inflation numbers there was some of that, but while reactions against it as if it were common remain frequent, it doesn't seem anyone is saying it anymore.
> And, I can understand that coming from the Whitehouse
The White House isn't saying that, in fact it's leaning on present inflation as a reason to pass it's legislative priorities.
> but news organizations, economists, journals, Twitter, publications
Major ones of all of those also seem to not be saying it.
it was never 'transient.' this was a platitude espoused by the fed to assuage rising fears of stagflation.
the only way to fight inflation is to raise interest rates, but since the fed is only now in the next month or so ceasing buyback operations for bonds, its hard to imagine theyll have the momentum within the year to stop the quantitative easing binge thats left the US (and the world) with a corporate credit bubble.
tl;dr its here to stay. raising the prime interest rate is the only way to really combat stagflation, but the fed cant do it without triggering a corporate credit crisis.
There was plenty of reason to believe inflation would be transitory back in the summer when it looked like Covid was on its last legs with the distribution of vaccines.
We are however in February now, and people are still not back in offices, demand for consumer goods vs services is still much higher than pre pandemic, China is shutting down some of the biggest ports in the world for weeks on a moments notice, and supply chain issues abound.
The bigger issue now is how many of these factors simply represent a new normal.
Powell/GS has promised it is transitory and so has President Biden. The fact that you are paying more for everything now is just temporary. Soon things will be back to normal, especially after we embrace the new green deal and approve the 3 trillion $$$ stimulus. It's different this time, Powell has the ability to create trillions with the snap of a finger and buy all the US Government debt indefinitely.
So I keep hearing the same two narratives over and over, we printed money and what do we expect (?), and supply chain issues. However, there is a third (and likely more) thing going on and that is megacorporate monopolies. Take toilet paper, the market has now completely consolidate on three major players (rule of three), Proctor & Gamble, Kimberly Clark, and Georgia-Pacific. Just looking at P&G we can see y/y (https://www.google.com/search?q=procter%26+gamble+q4+2021+ea...)
Revenue 20.95B +6.12%
Net income 4.22B +9.57%
Diluted EPS 1.66 +12.93%
Net profit margin 20.15% +3.23%
During the last year they have paid ~3% dividend on top of buying back billions of stock (https://ycharts.com/companies/PG/stock_buyback), in Q4 they increased their buyback from ~3B->4.75B.
With all do respect supply chain/monetary policy concerns are a cover for what is really going on, lack of competition in the market. A rational market with multiple competitors and no price fixing, would prompt at least one of the competitors that is sitting on billions of extra money to drop prices. As a result they would increase sales and make up the profits in volume, this would prompt their competitors to follow suit or else lose customers and market share. You know Econ101.
The market is not rationale right now as we have allowed these mega mergers and pushed out all small competitors. That 7.5% inflation is them coordinating prices and sticking the profits back into their investors pockets, then using supply chain and monetary policy as cover in the media.
I feel a bit bittersweet knowing that all this "stuff" is going on behind the scenes.
- Massive companies swallowing smaller, more agile, potentially more competitive companies like some uncaring amoeba allowing for massive silicon valley conglomerates like FAANG companies to influence public policy more and more in their favor, removing any sense of competition in a market, while politicians pad their wallets and purses on the side from "speaking fees" and cash handed under the counter.
- Being told that we're being told by every single media outlet that "inflation is transitory, it'll be over soon" - reminds me of the outright lie of "two weeks to stop the spread" while governments rushed to figure out what they were actually facing instead of being honest.
- Corporations moving to capture more industries that aren't even related to their original core business model to extract more value out of their users. Why does an e-commerce company like Amazon need to buy a fitness company like Peloton? Why does an advertising company like Google need to buy fitness companies like FitBit? Why did Jeff Bezos need to purchase Washington Post?
I'd say "why would society let this happen to us?" but really it's more "Yeah, we did this to ourselves". I'm really not sure what the answer is and I'm not sure if there is only one, or two, or any answer at all.
It's just depressing so I just ignore it until I hear about it again - maybe that's the problem?
Government edicts prevent any new players from entering the market.
In our market we have supply and demand. Currently, there is demand chasing a shrinking supply. We wrecked the status quo by freezing the economy and the jobs held in place. With the stimulus checks, wages were forced up to overcome the challenge of people sitting at home or coming into work. Costs thus increased. Most of the suppliers have held back on price increases because they a. Do not want to hurt the consumer, b. Do not want to have the government thinking they are price gouging (which if you want to be new to market and provide a product similar to everyone else but at a much higher price to cover your entry costs, good luck with the opportunistic folks in congress looking to pin this on the corporations).
The small businesses are not nimble enough to make paper towels because of capital investments not being there, the big players having a monopoly on store shelf space, and government agencies ready to swoop in and bury you in legal morass.
Now we see the companies realizing they are all in this together, similar to when all the airlines simultaneously declared bankruptcy. I am not saying they are collusion to increase prices, I am saying they are inadvertently appearing to collude based on how they feel out the other corporations going.
So, it looks like their revenue went down a tiny bit in inflation-adjusted dollars, and their margins are basically flat - 3% is noise; historically, too - the recent increase was due to a prior COVID drop [1]
That doesn't look like monopoly abusing its power to me.
I believe this is what Elizabeth Warren has been saying. It struck me as just political theater at first, but this is the second time I've seen people pointing out that profits for some of the largest corporations have actually been increasing.
>So I keep hearing the same two narratives over and over, we printed money and what do we expect (?), and supply chain issues.
Supply chain claims are fairly baseless. The assertion being that supply is low, demand stays the same. prices go up. The obvious argument is that when the supply chain issues are resolved, you would require deflation. Which is certainly not coming and not happening.
>With all do respect supply chain/monetary policy concerns are a cover for what is really going on, lack of competition in the market.
If this is true, the easiest way to become rich right now is to simply create competitors.
>The market is not rationale right now as we have allowed these mega mergers and pushed out all small competitors. That 7.5% inflation is them coordinating prices and sticking the profits back into their investors pockets, then using supply chain and monetary policy as cover in the media.
If this lack of competition is what is happening. They will actually come buy you out and shut you down. You likely wouldn't even have to do much to compete.
Wage growth was flat when taking into account inflation. It was not flat in and of itself. In other words, I believe inflation adjusted wage growth was 0.1%, or a wash when taking into account inflation, per the #’s.
There was an interesting article on what could be driving housing inflation a couple of weeks ago-cant find the link. It was about the soaring prices on billionaires row in Manhattan.
The idea in the article is investors are trying to increase the liquidity of real estate assets down the line towards the higher liquidity of stocks. The results are more investors seeking returns from real estate, buying up buildings as if they were stocks. This can cause a fast step change in demand against the slower increase in supply, driving up prices quickly, which in turn drives up rents.
Energy costs hit this inflation as well, because most buildings need heating and/ or cooling during the year. With the supply of traditional energy being artificially restricted, this drives up the costs associated with real estate, increasing everyone's costs. Look at what's happening in NYC.
I saw this coming and knew I'd need some things when the stimuli hit, so I bought a computer and some other stuff I needed. It extended me a little more than I would have liked, but I have to admit it was the right call.
I still would have needed what I bought, but it would have cost more (or I would have had to buy a different - probably more expensive - item due to supply chain issues) if I waited.
I hate being incentivized to be 'irresponsible'. It feels like I'm living in upside-down world.
You just need to get a job at a FAGMAN company so you can live at the office and eat all the free food. Shower in the gym and sleep in the lounges. If this is not possible you need to stop spending. The only things you should be purchasing in this type of environment is food (real food it's cheaper), fuel and paying bills. No spending on anything else, clothing, going out, Chinese crap. Save what the Government is stealing from you through inflation.
Arguably, its a more accurate acronym since Microsoft is more valuable than all of FAANG except for Apple (and Microsoft is more pure-play tech than Amazon or Netflix).
Also, my inner 1990s 12 year old boy mind thinks it is funny. So there's that.
Maybe (and its a big MAYBE) this works if you are 22 years old with no family or relationships. Otherwise this sounds like a terrible option and a depressing way of life.
When I hear “it’s transitory” I feel the urge to point out, that while it may be true and inflation will go to zero for all we know - the change in prices is likely to remain.
Here’s something that bothers me most of all and I don’t hear much about: both my water and sewer, and electric utilities - increased prices by nearly 30%. I received notices and accompanying bills a few days ago. This was preceded by garbage pickup company raising rates similarly as well.
In my personal life experience - I’ve not seen utility prices go down, ever.
First, utility prices are really your state's responsibility (as in, they ultimately decide how expensive it is). Things like driving for green energy and canceling pipelines add to the cost. Obviously, the hope is that it pays off in the long run. Second, [1] is Nevada decreasing prices last year. Your "lifetime of data" is really a data point of n=1.
Perhaps you are right. My life experiences in US date back to 1995. I can’t think of a single utility or typical household spending bill that was more expensive in the past than it is now. Can you think of one?
Not even the five dollar footlong lasted much longer than a decade. Outside of new technology, nothing is going to get less expensive over the time span of 30 years. That's guaranteed by the 2-3% inflation target.
I don’t disagree with what you said. I am of the opinion however based on my experience - that these large jumps as we experiencing right now - tend to stick and make you wish for the good old 2-3% inflation.
There were a lot of people complaining on my local Nextdoor about electricity rates being higher recently. I checked my bill and sure enough rates were higher.
But then I checked my old bills. I've been in this house for 15 years and have all my past electric bills. The rates have gone up and down, and have been higher a few times in the past. There was no obvious correlation between when they were high and what political party was running things at the time.
Similar with gasoline prices. I see lots of complaints of record high prices locally. I paid $3.60/gallon a couple weeks ago at ARCO which is indeed quite a bit higher than the ~$3/gallon it has hovered around for a while.
I checked my records. They only go back to the last quarter of 2017. I find that the highest I paid since then was $4.63/gallon on 2017-11-05. Second highest was $4.21/gallon on 2017-09-21. In between those on 2017-10-06 I paid $3.45/gallon and on 2017-10-20 I paid $1.90/gallon. All of those were at the same ARCO station. The next several times over the next several months were all in the ~$2.90/gallon range.
This puzzles me, because I cannot remember anything going on in late September or early November 2017 that would have caused short high spikes in gas prices. Anyone have have a better memory?
>In my personal life experience - I’ve not seen utility prices go down, ever.
I think it depends on the utility. My town dropped electric rates a bit a year ago[0] and I think it's even more common for rates to fluctuate (both up and down) with utilities like natural gas or even oil heat, where it's more closely tied to the price of a single commodity.
Minor pedantic point: prices (or specifically, the consumer price index) rose 7.5%, not inflation. It IS 7.5% YoY and did not rise 7.5%.
(Sorry, switching off Man-Shouts-At-Cloud Mode).
Inflationary expectations are definitely getting reanchored at a higher level, so it's hard to see an easy/painless exit. Helps deflate the debt/GDP ratio though (it's nominal GDP in the denominator, which includes inflation), so some folks will be happy.
If this is the result of a lot of very marginal people getting pay raises and $1600 checks, it would show how much of the real economy rests on slave wages.
I'd like to see how much of the money went to individuals vs the amount captured by the finance industry from Quantitative Easing and the other more targeted programs.
I think the psychology of pay raises and inflation is interesting. I’ve never heard anyone when inflation was low taking about how their 20% pay raise (from moving to another company for example) was 18% over inflation. This comparison of pay raises to inflation only happens when inflation is higher THAT YEAR, which I emphasize because technology salaries as a whole are one area that has greatly outstripped inflation over the the years.
I’m not trying to dismiss or minimize people who are not happy they effectively got a negative pay adjustment this year, just commenting that the perspective on how to measure pay relative to the economy and market doesn’t seem consistent, and I think that says a lot about psychology of rewards for work.
Obviously this also has different meaning in jobs where wages have been largely stagnant for many years, and weren’t keeping up with cost of living even before large inflation.
Anyway, if you are a software engineer or other highly paid professional, it might be an good thought exercise to examine your lifetime (or some other timeframe) increases vs inflation, or look at your spending that will be actually impacted by inflation (groceries etc) and calculate the tangible impact on your life in terms of cost. Again not to say that high inflation is positive or anything, just as a way of adding context and additional perspectives that are missing if you look at this year in isolation and it wasn’t a year you got a substantial increase in pay.
If I am understanding the numbers correctly, I am pretty sure inflation adjusted wage growth outpaced inflation (barely), so assuming both trends continue, it’ll just be a wash.
I think that is a perfectly reasonable and likely hypothesis. It would make sense for prices to rise simultaneous to wages, as companies are not cutting their profit margins out of the goodness of their hearts to pay increased wages.
“ The burst in inflation has muted the sizeable earnings growth workers have seen. Real average hourly earnings rose just 0.1% for the month, as the 0.7% monthly gain in wages was almost completely wiped out by the 0.6% inflation gain.”
It seems usually, when inflation is reported on, the printing of money is not mentioned, though far and away it is the main factor causing substantial inflation.
It's humorous how certain all the libertarian armchair economists are that this inflation is caused by the money supply rather than the extremely visible effects of the broken supply chain.
No no, the everything shortage, massive backups at the ports, the trucker blockade, and everything else are totally unrelated; clearly it's a problem of fiscal policy.
Cars and trucks + gasoline + other oil products + meat make up 70% of the excess inflation we're seeing. Cars have a specific and well-defined supply chain issue (semiconductor unavailability) that we believe will resolve eventually. Meat prices seem to be dropping. And energy prices are only high in a relative sense: WTI crude is cheaper now than it was in most of the period 2007-2014 [1].
You mean things like people NEED? when oil goes up EVERYTHING goes up. What about food and rent? Food is probably at least 10 percent and rent up at least 20 percent in my city. This only hurts the lower and middle class.
Like I said, oil is up. But it’s not up that much compared to prices we’ve seen in this past decade. I’m not convinced that raising interest rates (and potentially throwing our whole economy into a depression) is the right answer to any of these problems. But it’s a very real answer that a lot of people in this thread seem excited about.
Constraint engineering:
You mitigated the money supply constraint. If Supply Chain is the new constrain as you posit, it means structurally, the infra we've got is breaking down, and that money should be re-settling in tooling or re-establishment of manufacturing/factories to mitigate the unreliable supply chain.
In order for that to take place, we need a prioritized list of what goods can be focused on economically. Then we need to get people organized and hop to it. That isn't happening. Either because investors are to squeamidh to take a risk, or Execs aren't popping up with ideas for execution to get invested. Execs aren't starting businesses, because that takes significant capital and stability from which to embark on the journey of fund raising from. Increasingly, that gets further and further out of reach as people don't get paid enough/the right experience to build up the springboard to jump off of, or even if they do the list for industrial sectors without value deserts is shrinking due to hyperoptimization fueled my mergers and acquisitions combined with an optimization to minimize worker pay, silo people, and an increased tendency to poach advice only from an entrenched "management" class.
I mean, none of these problems seem terribly obscure or hard to reach from my perspective. Capital is increasingly centralized, and if you've got international players not playing nice enough to keep JIT feasible, you have to go old school.
You think dumping trillions of money in a covid stimulus package didn't cause inflation? Most of went to the rich anyway. Demand should go down when prices go up.
I don't think so, because as you said most went to the rich anyway. For the inflation to be caused by the stimulus, it'd have to actually be in the hands of people spending it.
Demand can only go down when prices go up for elastic goods, so this isn't a factor for, e.g., oil, and anything made or transported using it (everything). Demand is further increased by people having already put off a lot of spending for 2 years.
> caused by the money supply rather than the extremely visible effects of the broken supply chain
Supply chains disruptions are a core feature of monetary inflation, and they always have been.
When you adjust the price of money (interest) to where it is more affordable to pull future consumption into the present, one day the future becomes the present. And that is a future where there is a shortage: the hardworking ants eventually do get the better of the summer grasshopper.
That it need be said, but this current supply shock was predicted by everyone not enthralled to Keynesian policy prescriptions. The 1970s saw similar supply shocks and inflation, caused by (1) the Nixonian debasing of the monetary system in throwing off the last vestiges of the gold standard, and (2) various incompetences of spending and energy policy failure in the Carter administration.
This is what happens when you think there's a centrally planned "natural" rate of interest for the economy, and don't allow interest rates to be accurately priced on a per-instrument / sector / commodity basis.
To a first approximation, a libertarian would ignore all government statistics and instead look at markets. He sees the massive 10bp inversion in the eurodollar spot curve two years out, concludes that there is no (monetary) inflation, and positions himself for (monetary) deflation. He would agree with you that the CPI inflation has all the causes that you mention, perhaps throwing in lockdowns, vaccine mandates, and general government incompetence for good measure.
By the time the next performance review hits, I'll have likely sustained a 12% real pay cut. Who knows what the 'merit' increase will bring that out to, but I'm guessing it'll be about an 8% real pay cut.
Can't tell what the point of your post is, but there is a real responsibility for you to see what the job market will bear if you want to not have a 12% pay cut. You are a player in the economy, and I don't understand why people keep thinking that companies are going to kneel and adjust their employees salaries accordingly without a good economic reason to do so.
It's mostly about awareness that the companies will screw people over. My hope is that unionization could help fix this. Although the tech industry seems adverse to that.
I have been looking for jobs. My area sucks. The company has used me for necessary tech that doesn't have a future, so my background sucks. Basically I suck and my area sucks. It will only get worse, no matter what I do. Even though one is a player, there are constraints, and the game can even be rigged.
100%. I like the company culture aspect of working, but I have stopped deluding myself that a company won't cut me as soon as it is impractical to keep me, just because of loyalty or good will. I don't know that unionization is the answer though, I would lean towards competition as a better scenario.
Are people still getting "cost of living adjustments"? I remember they were pretty common a few years ago where you got a nominal 1-2% raise every year. I feel like this year they skipped them entirely because it would have been offensive to get bumped 1-2% when you know the cost of living has gone up (conservatively) 7.5%, and obviously they an across the board bump that large would be a lot.
In my native Belgium, indexation is set in law. Price levels up by 6%? Wages up by 6%. There has been tiny bits of nibbling at the edges, but the principle stands and is not up for discussion.
It seems a bit silly to do it this way and not authoritatively denominate the salary in a unit of account that isn't subject to such annual volatility in value. Otherwise you're still losing out, due to the fact that for ~11 months of the year your salary is not correctly inflation-adjusted.
I look forward to the technology behind payment systems getting to the point where "streaming" payments are a thing, paid every minute or hour or whatever over months or years. Your salary could be denominated in big macs or grams of gold or shares of BRK.A or whatever, and the streaming process that sends your payments in EUR or USD or whatever simply calculates the current conversion (which would approximate continuous adjustment for inflation).
It's such simple math and APIs. I wish payments (salary especially) weren't so tradition-based.
> I look forward to the technology behind payment systems getting to the point where "streaming" payments are a thing, paid every minute or hour or whatever over months or years.
Why?
> It's such simple math and APIs. I wish payments (salary especially) weren't so tradition-based.
Yes, it's conceptually easy math (ignoring all the infrastructure needing to be updated to support this), but I'm not seeing the huge benefit here.
If people are having trouble making ends meet, do more to improve the balance of labor in society rather than just let people get access to their middle of the month check a few days sooner. That's a bandaid on a larger problem.
The concept of "continuous work" or employment is really that of an ongoing payment structure. The concept of weekly, bi-weekly, or monthly settlement is an artifact of the time when payments weren't automatic. Send an invoice, wait for post, open envelope, send a check, wait for post, open envelope, send to bank, wait for post, open envelope, send to other bank, wait for post, open envelope, is why we have such concepts as Net 30 terms.
Ongoing business relationships where you are paid flat x per y unit of time (monthly service charges, salaries, etc) can be easily modernized to minimize the amount and the duration of being out of settlement sync. It's not a matter of getting your paycheck a few days sooner, it's that for the vast majority of the time you are working, your employer has some amount of money that belongs to you, simply because settlement was a manual, human process until recently. We can settle every minute now because we have machines.
This is sort of like saying that APIs are not useful because you can just wait to the end of the week to get your email in a big batch. Your personal income or your business revenue is much more important than email.
Across the entire economy this is a massive amount of interest that goes to employers instead of employees, customers instead of vendors. It's not really theirs.
Additionally, interval-based settlement doesn't fix the other bug in the system I mentioned: annual manual algorithm-based adjustment.
Any time you have a human manually calculating an algorithm every x months, it seems to me it would benefit everyone in society to have machines do that every x milliseconds instead.
> Your salary could be denominated in big macs or grams of gold or shares of BRK.A or whatever
So you would like your salary denominated in things that are more volatile than currency. That is an interesting choice. I’m sure you would enjoy that when, e.g., gold drops and you can’t afford rent for the month because your salary dropped to match.
We get a 3% inflation pay bump every year. It will be interesting to see if it will be a >3% bump this year or if they will leave it the same but change the name to something other than inflation pay bump.
A recession was all but guaranteed as soon as governments mandated shutdowns of broad swaths of the economy and scared the ever living hell out of people by making it sound like we were all going to die if we engaged in trade.
They/we just decided to delay the pain by printing lots of money and handouts which decouple the pain from the shutdown, instead 2-3 years later we can blame it on some vague 'inflation' and the massive loss of quality of life, suicide, drug addiction and other results of recession can be blamed on something other than the mismanagement of the nation in the pandemic.
Might seem counterintuitive, but does anyone else see this as a positive sign? In that, we have been going for about 15 years injecting liquidity into the economy with little to no increase in inflation. That was counterintuitive to most economic assumptions and is something Japan struggled with for some time with quantitive easing, to the point of deflation at times. If nothing else, the Fed and economic theories have tools to counter inflation, which in my mind, isn’t completely bad news.
It’s potentially bad because the market isn’t as simple as “keep inflation at 2%”. We also want GDP growth and low unemployment. The tools we have to decrease inflation can hurt both of those metrics. This means our position is risky, and the treatment to reduce inflation might have strong consequences.
That’s fair, but we were also running out of tools to increase liquidity/inflation as well. Not many tools to increase inflation to a healthy number when interest rates are already at or approaching 0% and billions of dollars are being created out of air.
It would seem a good time to start unwinding the $9T or whatever in treasury held securities so that we'll be ready to keep inflation at 2% for the next deflationary trend.
> Well, someone/thing has to set the stage for another war that will "dig us out of recession."
Recession and inflation aren't the same thing, in fact, they are more opposed than aligned. The current inflation accompanied, and has in part been driven by, the rapid economic growth coming out of the COVID slowdown.
I (well, realistically my wife and I) just bought a house and I remember thinking "now would be a good time for a bout of inflation." I'm not quite as certain about that anymore but the rate we got is a fair bit less then 7% so I suppose we're making out on this to some degree. Not on groceries though.
It's not (just) about the interest rate on your mortgage, though. The real benefit comes as salaries ratchet up in response to inflation, which will happen as long as the inflation is somewhat persistent.
Thinking back to the mid-90s, for example, CS grads from prestigious schools were jockeying to earn $40k-$60k at prestigious tech firms. They were able to purchase houses on those salaries. If someone purchased a house in e.g. San Mateo after a couple of promotions to $75k, they might have spent in the neighborhood of $250k[1]. A few rounds of inflation later, the payments on that mortgage are inconsequential to that person (who may still, in 2022, hold a mortgage there).
Great thing that it's possible to work remotely from low-cost areas now! If the median home price in your area is more than $320k, you might consider going remote and buying elsewhere. (If home ownership is a top priority.)
Low-cost areas are almost all not places you want to live with a family, if you have a choice. They almost all have poor services for families and mediocre to bad public schools.
Unless you can afford to have one parent not work and that parent is good at teaching kids at many ages and in many subjects and that parent won't go insane doing that for years on end, which is at any rate opportunity-cost probably more expensive than just moving somewhere less cheap in the first place (especially if the other parent is that capable, surely their earning potential is significant).
So this works well for single people with remote jobs or couples who never want kids and for whom neither partner's work requires proximity to a decent city.
> Low-cost areas are almost all not places you want to live with a family, if you have a choice.
The unsaid foundation of this obvious bit of snobbery is that only a handful of coastal US cities are suitable for families.
The median house price in the US is $408k. If you live in a market with a higher median price (for example: Washington, D.C. is $600k, LA is over $900k, SF has a median of $1.3m), you like in one of the most expensive US markets. It's obviously silly to say that people living in e.g. Atlanta ($375k) or Charlotte ($355k) or Chicago (median: $324k) are all living in places with "poor services for families and mediocre to bad public schools." (Also: the median sale price in SF will buy you a mansion in most of those other cities.)
Everybody won't be able to buy both a home and the experience in living in one of the most expensive cities, but they should be aware that it's a choice.
> The unsaid foundation of this obvious bit of snobbery is that only a handful of coastal US cities are suitable for families.
Not obvious snobbery. Lower density means greater distance to and fewer options for child care and other important (or even just nice-to-have) services. Right? Possibly also greater distance to friends, relatives, et c., who could help out.
The rest is from many hours over several years trying and failing to find somewhere cheaper than my dead-center-middle-tier-city (mine's lamer than any of the cheap options you mentioned, except maybe Charlotte, but I wouldn't bet on it) 'burbs that has decent-or-better schools k-12. Conclusion: the choices are to compromise my kids' education, do home schooling, or pay for boarding school (which is not remotely something we could swing for more than, at a great stretch, maybe one kid—and there go all your savings on housing, and then some).
I do not live in a rich coastal city. My house is now over your $408 median but was way under that when we bought it three years ago (and we thought that price was a rip-off, already being way higher than it was about two years prior) and our schools are... good for the area.
In fact I've also struggled to find anywhere I could make a lateral move, price-wise, that would come with significantly better schools than where I am now. The trouble is that those areas are in-demand, so of course prices are higher than areas with worse schools.
What it sure looks like is there are floors on how low you can go in a given price bracket without school quality starting to slip. Realizing significant savings on housing by moving somewhere lamer and with worse local economic opportunities than where I am now, comes at the price of worse schools. To get better schools (short of paying for a good private school) I'd pretty much have to move somewhere more expensive (though, to be clear, not all more expensive places have better schools than my district).
[EDIT] More to the point, my personal situation is pretty OK, actually—less than ideal, but OK—but even in this not-exciting economically-middling city housing prices are rising much faster than young folks can save for them. The point is that young people are getting priced out, even here, they're getting priced out of options like what I've taken, fast. Our house is up something like 35% over 3 years, and we though the price we paid was a rip-off (~20% higher than 2 years before that).
> Lower density means greater distance to and fewer options for child care and other important (or even just nice-to-have) services. Right?
You are Density is (outside of the top 4-5) a weak proxy for home prices[1]. Chicago being one example, the Houston metro being more dense than Seattle metro for another. More importantly, you have to go to a pretty small town to start missing even nice-to-have services. I'm suggesting that there are top 25 major metros where housing is cheaper than the US median and where there are good schools.
> What it sure looks like is there are floors on how low you can go in a given price bracket without school quality starting to slip.
This holds within, but not across, markets, obviously. $450k in one market is an excellent school district, while in California it's not. If your budget is $450k, you will land in a better neighborhood with better schools in a cheaper city than in a more expensive city.
> decent-or-better schools k-12
Reminder that rating sites like great schools penalize districts in urban areas. Density typically includes apartments/affordable housing/transit, which frequently includes people struggling financially and/or people whose first language is not English. This shows up in test scores. Even if every family at a school excels academically except those of more modest means, rating sites will ding the school. Even though research shows such environments are often very good for children. So "school quality" ratings basically are "what percentage of families in this neighborhood have white-collar professionals," which is not really a great measure. TL;DR; it's difficult to evaluate school quality via the Internet.
> Possibly also greater distance to friends, relatives, et c., who could help out.
Honestly, this is the real killer. I empathize with folks with tight familial ties to California, for this reason.
> This holds within, but not across, markets, obviously. $450k in one market is an excellent school district, while in California it's not. If your budget is $450k, you will land in a better neighborhood with better schools in a cheaper city than in a more expensive city.
Yeah, you are right about that. Thing is, even the area I'm in is inflating much faster than incomes are. I don't think young people coming up are going to have an easy time getting into even the relatively-cheap-but-decent-schools places like where I am. They're rapidly becoming not-cheap.
> Reminder that rating sites like great schools penalize districts in urban areas. Density typically includes apartments/affordable housing/transit, which frequently includes people struggling financially and/or people whose first language is not English. This shows up in test scores. Even if every family at a school excels academically except those of more modest means, rating sites will ding the school. Even though research shows such environments are often very good for children. So "school quality" ratings basically are "what percentage of families in this neighborhood have white-collar professionals," which is not really a great measure. TL;DR; it's difficult to evaluate school quality via the Internet.
Very true. I've seen some try to address this by making "equity" (or similar) a significant part of whatever final score they have, so that under-performing schools that are at least not notably failing to serve their low-income students get a big bump in the ratings, and apparently-good ones that are doing poorly at bringing up lower SES student scores have that failing amplified. Modern testing also helps with this, with a stronger focus on growth versus absolute scores. In both cases those can also muddy the waters, though, if your concern is trying to find the absolute best instruction and overall experience in an area. Measurement of that is definitely a tough problem.
Separately, it is also the case that school quality appears to be largely based on selection bias, that is, the "good schools" also tend to have the easiest-to-teach (stable home lives, probably not having money problems) students—but it's also the case that better (more ambitious, better-performing, better-behaved) peer models and less classroom disruption will result in a better and more effective school experience, even if instruction quality were everywhere equal. It's a case in which my aims for best-serving my kids, and how I wish the world worked, are in some conflict.
> Honestly, this is the real killer. I empathize with folks with tight familial ties to California, for this reason.
Yeah, general "just move somewhere with a better economy" advice (usually aimed at folks already in cheap areas, not cases like what we've been discussing) usually neglect that the benefits of having nearby, on-good-terms family and friends can cost well into the five figures to replicate without them, for folks with kids especially. Loss of free child care, loss of "hey can you come help me move this?", loss of free skilled help for, say, auto or home repair, free rides places if your car breaks down, free transport service for the kids, et c. That's such a huge benefit, hard to abandon, especially for people with low incomes. (or, as you note, people stuck having to choose between an expensive area and a cheaper one where they won't have close ties to people)
I'd ask, because I've spent many hours over the last ~6-7 years trying to find a way to save on housing costs (and, ideally, get closer to any sort of natural environment that's inviting rather than dull and off-putting—I'd actually accept a lateral move, price wise, to gain that) without school quality suffering and without one of us having to home-school, but I doubt you want to publicize it :-)
I fear we're already at about the optimal cost/school-quality point. We're already in a boring-ass place way away from the coasts, but even here housing prices are inflating faster than younger folks can save the money to buy them. It's crazy. For them the only way to buy a house will be to move somewhere with really bad schools, which was what I meant in my original post—I've got an OK situation, but younger folks won't have even this option.
I alluded to this in my other post, but unconsciously what people mean when they talk about school quality is "how many of the families are at least as educated/rich as we are?" Kids with educated parents fare better in school, so if you have a lot of educated families in a place, magically the schools improve.
The corollary to this is that when educated people move somewhere, the schools get better. have seen this happen in a number of city neighborhoods in my area and others. And NYC is going through this now, as millionaires move to Brooklyn.
There definitely is a correlation between constituent family income and school "quality", sure, but the actual experience is still overall better (will tend to be, anyway—please take any of these generalities as statistical in nature, not absolute) if you can get into those better-due-to-selection-bias schools. A lot of the same things that make kids in poorer schools harder to teach also mean more classroom disruption and worse peer models, which do harm the experience and outcomes for kids in those schools, even if they are from a stable household without money trouble and the effort & expertise that goes into instruction is identical.
That selection bias thing is part of why it's so damn hard to crack the problem of evening out (while, ideally, improving the average of) school performance—but when I'm wearing my parent-hat and not my speculating-about-public-policy-I'd-like-to-see hat, it's hard to conclude other than that paying attention to which schools are "best" is still a good idea, even if the reasons are a bit bullshitty.
Genuine question: are they doing real COL adjustments, or window dressing? For example, the Bay Area can reasonably costs 2-3x+ relative to other major US cities. Are remote jobs really cutting total comp by 50%-60% for remote workers in the US?
Or are the differences more cosmetic, like 20%? I have seen this before and it is always a huge win for the employee.
And, I can understand that coming from the Whitehouse, after all it’s a political liability… but news organizations, economists, journals, Twitter, publications… as if they all just joined a narrative to wish something untrue.
There is no “fourth estate”. That looks to have been a myth to perpetrate unwarranted prestige.