That “Inflation Inequality” Report Has a Major Problem
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Here's the fallacy - it's impossible to measure "price inflation" in a modern economy of any size. Prices change for a variety of reasons related to supply/demand considerations. And price "inflation" is itself a symptom, not a cause.
The only thing it makes sense to regard as "inflation" is an expansion of the supply of money (and credit) in the economy by government. THAT can be much more reliably measured and gauged as to its effect on prices in general. For example, the massive increase in the money supply by the Federal Reserve 2009-2015 would have been expected to cause a commensurate increase in commercial prices as well. But the Fed added a new policy to pay interest on excess bank reserves, keeping that massive increase out of the commerce stream. Unfortunately, it found its way into the debt and equity markets - there's your "price inflation".
The real injustice of inflation is that it allows the folks in the front of the line to commandeer real world goods and services in effect for nothing - money created ex nihlo. The folks in the front of the line (bankers & their cronies) get the goods and services at yesterday's prices with "new money". Joe Mainstreet at the end of the line gets higher prices and reduced real wages...
As is app rent to anyone who know how inflation is calculated, the "problem" with the report is simply that it was just not done in a way comparable to the standard calculation. It would be a very good thing for the next Democratic President to have Bureau of Labor Statistics calculate different inflation rates for different income levels as is don in some other countries. It would form a part of an (unfunded) Bureau of Economic Statistics project to calculate real incomes for different income levels.
In a $22T economy (conservatively measured using GDP), that's simply impossible. Prices change constantly and are different by region. The assumption that government can collect all that disparate, historical data and implement a policy today that changes things tomorrow and be correct is magical thinking.
If you want to know what the inflation rate is, study the Federal Reserve's actions on growing the money supply. Inflation is a means of legal counterfeiting and has exactly the same economic effects as illegal counterfeiting...
Only rich people buy olive oil? So I’ve been rich all my life, who knew. Silly example, as the prices for olive oil vary wildly based on how pretentious you want to be. Aldi has a pint of olive oil on sale for $2.49 this week.
It does not take a statistician to tell you that people who spend all of their income on basic living expenses are going to feel more pain from inflation and regressive sales and VAT taxes, than people who have discretionary income after paying for the basics. When I was young and broke, I comparison shopped, used coupons, and even tracked spend on a calculator while shopping for groceries to ensure I remained within my budget. Now, I just toss things in the cart without thought.
There is no way to calculate inflation simply because the current product is not equal to the prior product. We could greatly reduce heath care cost by returning to the days when if you got sick. You died.
Who they hell spends less than 10% on housing and health care? What, do they live in a box? @2k month on housing and 1k on heath care, you’d have to make 360k/year and thats well above the top 20% threshold.
Top 20% is ~$120 household income. $1200/month rent with free healthcare and 2.3 kids sounds more like someone on public assistance.
That's the difference between "top 20%" and "twentieth percentile". If you're right at the twentieth percentile, it would be difficult to get housing and health care for 10% of your income. However, the top 20% includes very rich people who may well be spending less than 1% of total income on housing and health care.
If the statement is that the top 20% spend less than 10% of their incomes on housing and health care, the way to verify it is to add up the total incomes of the top 20% of the population, add up the total housing and health care expenses of the same top 20%, and divide the smaller number by the larger. If the result is less than 0.1, the statement is true.
Lies, damn lies, statistics. Ask the right questions the right way, and wow, you get answers that support your theory. Brilliant.
Polling is not meant to be used to support a preexisting theory. Only morons and propagandists do that.
Yes, and ...
So if you have the raw data you can use it without claiming it's a lie.
However you may imply it is the truth. Sloppy polls and cabinets tend to be unattractive and unstable.
And anyone with a brain can figure out what the poll says.
In this case it says nothing, but so what?, it's a poll.
The only people that claim polls are lies and damn lies are people that can't read polls.
Obviously you are so schooled and brilliant that you must be right, I bow to your absolute genius.
@A Fistful Of Dotards @Aggronostic (Fanatic Moderate)
It's often unavoidable. There are many poll questions that simply would not be asked if the sponsor of the poll did not already have a hypothesis about the results, which (s)he is seeking to confirm or disconfirm.
A careful scientific approach to the issue is for the researcher to engage the services of a pollster who is not told the expected outcome and so will not bias the results with those expectations.
I buy vegetable oil and olive oil because they have different applications.
I do now, but when I was poor olive oil was never in the grocery budget.
Oil is pretty cheap for as long as it stretches. I figure I'd cut my expenses somewhere else.
If you're looking at the difference between one of those big bottles of canola or vegetable that will do for basic cooking for 4 months vs a same-price bottle of average olive oil that will last for a month, and getting canola lets you buy more vegetables or meat or cereal, what might you choose?
Olive oil is blech. Only Canola for me.
- Olive oil "blech"? Doesn't sound like you have tried real olive oil! Also olive oil is a fairly natural oil while canola is highly processed and 'may" contribute to cancer. Some reading:
Canola oil production involves high heat and exposure to chemicals.
Considered a chemically refined oil, canola goes through stages — such as bleaching and deodorizing — that involve chemical treatment (21Trusted Source).
In fact, refined oils — including canola, soy, corn, and palm oils — are known as refined, bleached, and deodorized (RBD) oils.
Refining markedly decreases nutrients in oils, such as essential fatty acids, antioxidants, and vitamins (22Trusted Source, 23Trusted Source, 24Trusted Source).
Although unrefined, cold-pressed canola oils do exist, most canola on the market is highly refined and lacks the antioxidants contained in unrefined oils like extra virgin olive oil.
I'll live under a bridge before trade my craft IPA for a keystone light.
@Bingo Bango Boingo
If Carter hadn't deregulated beer brewing in 1979, you wouldn't have that option.
A bigger point is that in the 1990's, Coors Light was one of the suggested beers to serve at your parties. Now craft beers are the choice. So while the price of a case of beer has gone from $12 to $15 for Coors Light, the price of a case of beer for the well off has gone from $12 for Coors Light to about $40 for that craft beer option.
The mix of products is much different today than 10-30 years ago. The authors failed to account for these changes.
“ A 2017 Morgan Stanley report found that, as of 2016, the lowest-income consumers spent more than 57 percent of their after-tax income on rent and health care; by comparison, consumers in the top 20 percent spent less than 10 percent of their after-tax income on the same two categories.”
Well duh. Most people in the top 20% pay mortgages, not rent. And most of a typical mortgage is interest and taxes, not equity.
: I think "rent" may be interpolated by the author. Usually these figures are "housing", health care, food, etc.
"And most of a typical mortgage is interest and taxes, not equity."
That's true at the very beginning of a mortgage, but as the mortgage progresses a larger chunk of it goes it equity every month.
Most people aren't at that point, and refi along the way.
Most people aren't in the top 20%
There is no way that statistic can be accurate. I believe the top 10% cutoff (90th percentile) of households earn roughly $150k a year. After taxes that’s probably 125k. You’re telling me they are spending less than $12,500 a year combined on housing and health care?
150k a year is gonna be a lot lower than $125k. SSi and Medicare are about 9% at that rate alone, dropping $150 to about $137k. State and federal taxes will easily take another $20k-$30k.
If you live in NJ, even if you put in a max 401K contribution of 18,500 your still paying $39,000 with 2 kids and wife in federal and state tax. Then 9% SSI + Medicare 13,500
In that case your take home is
150 - 18 (yes this technically is savings) - 40 - 13.5 = 79.5K. Not too shabby, but I don't people realize what taxes are.
I asked once, what they think I should pay, they said at least 25%, I laughed and said, I will take that deal any day
Top 10% is closer to $200/$250K
For household income, top 10% is about 150000
- The BLS DOES NOT include mortgage payments in their CPI calculations. To them, housing is under the global name "Shelter" and they look at average RENT paid in your area. If you are a home owner, they compute the expected cost of rent for the house you live in to get the CPI.. See:
Inflation hurts people who save money the most. Generally that is rich people, but not always. If you get $1000 and spend it, you get $1000 worth of goods. If you save it I’m a 2% inflation environment, it buys only $980 with of goods in a year. $900 worth in 10 years. If you have a million dollars in a 401k, it is losing $20000 worth of purchasing power a year.
That is a pretty poorly selected 401k in your example.
I’m not sure about inflation hurting the rich/savers more than the poor. If your salary is static and prices go up, you are getting hurt, too.
The rich fight things that could lead to higher inflation, like gov't spending
Good. Higher inflation shouldn't be a goal.
True. I didn’t say they didn’t get hurt, too. I’m just not sure that they get the worst of it.
Not sure about that either. If you live off of investment income, your net returns are better in a low inflation environment, all other things being equal.
the wealthy invest their money, they don't hold cash. And if they do, they are stupid. So...we could say it impacts stupid people most.
: This is dumb. What you are saying is 1% of a bigger number is a bigger number.
Why not look at salary? Why not look at expenses?
By your reasoning a household that earns more is impacted more by 1% inflation, because 1% of a bigger salary is bigger.
A household that spends more is impacted more, because 1% of bigger expenditures is bigger.
The impact of inflation on a household is usually measured in percent, not absolute.
define "Hurts" if you mean rich people lose a bigger percent due to most of their income being investment based, then yes. If you define "hurts" to mean impacting your ability to provide safe water, food clothing and shelter to yourself and family then not so much.
I just did a quick search and found a plain savings account with a 2% rate. (I actually have no idea what my savings account rate is, because I usually move money out of it into other investments) If google is correct that inflation is currently 1.7% that means that someone who is just saving their money in a standard savings account is already beating inflation. and your statement is completely wrong.
Also, people who have enough money lying around will almost always beat inflation through investments.
Now, if inflation is exceeding the returns on investments, and savings rates, and wages are keeping up with inflation then you are correct. however, that hasn't been the financial reality since I have been alive.
Standard savings accounts are not paying anything close to 2% right now. That has to be a promotional rate. Savings accounts are paying close to zero right now. What a blessing for you to be in circumstances where you don’t have to pay attention to this!
Discover does routinely, and some credit unions. It will drop if this continues, but it will go back up if it can. Nerd Wallet is pretty good for researching these.
If you have a million dollars in a 401k you should be gaining on average $80,000 a year so you should be gaining about $77,000 worth of purchasing power a year
If you stash your money under a mattress or in a checking account, your analysis is correct. However, most wealthy people have the money invested in something. Last time I checked, even a basic CD was enough to keep you even with inflation.
Do you save your money in your dresser?
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