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Americans’ Wages Are Higher Than They Have Ever Been, and Employment Is Near Its All-Time High
(www.americanprogress.org)
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this post was submitted on 17 Oct 2024
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The point of the inflation index is that it includes the same basket of things that people buy — including housing. There are some specific ways in which the official numbers can lag peoples' experience (eg: how owners-equivalent rent is handled) but what you're doing is suggesting something terrible, but not actually providing any real evidence for it.
https://cdn-0.inflationdata.com/articles/wp-content/uploads/2023/12/Inflation-Adjusted-Home-Prices.png
1975 inflation adjusted housing price vs. 2023 inflation adjusted housing price. Sure, everything in the basket is adjusted for but the biggest single cost of any of our lives is now double. I can get a BigAss TV for $300 and subsidized milk for $3.70 but my house is $500k
Yes, but it's included in the proportion to which you buy those things. So if you're spending a lot less on other things, but more on housing, it's a wash for your overall expenses. The point is that compared with overall expenses, wages went up more.
OK, so this is how my smooth brain thinks about it:
Housing is double when adjusted for inflation. Milk is obviously not. I think milk has stayed flat since they started tracking it in the '90s.
If I paid the same (adjusted for inflation) for my house and paid double (again, adjusted) for milk I would have a lot more money left over at the end of the month. I don't think CPI takes into account how much milk I drink compared to the one house I need.
CPI does weight items by based on spending patterns (although the details of how to determine this weight are complicated and the main reason there are multiple inflation indecises).
The 2022 CPI has a 0.178% contribution from the price of milk, and a 45.065% contribution from the price of Housing. Housing itself is subdived into several subcategories. Notably, neither the purchase price of a house nor the typical mortgage are included. Instead, homeowners cost of shelter is covered by "owner's equivelent rent" which attempts to answer what the owner would be paying if they had to rent the house they are living in.
https://www.bls.gov/cpi/tables/relative-importance/2023.htm
The market basket approach they use looks at the mix of goods and services people buy. So yes, it captures the fact that housing is more of a typical person's budget than milk.
I did a quick search and couldn't find an answer.
I wonder if part of the disconnect is that they are using just a general "dwelling" in CPI. As opposed to price per square foot. That is, is dwelling size shrinking, while costs are growing, this could cause housing costs to be understated in CPI
That's the whole point of CPI. It flattens a large aspect of capitalism into one magic number. It simplifies things for politicians and pals. But it's not an objective measurement for meaningful science, especially as used in these types of articles (OP).
It captures the fact that housing is some percentage of people's expenditures. But the measurement of housing and the percentage of expenditures are both subjective. It's a choice of measurement not a capturing of some objective "fact".
I may be misunderstanding, but doesn't spending a greater percentage on housing necessitate spending less on other things? Someone who spends 50% of their earnings on shelter has to make more careful budgeting decisions than someone who only spends 30% on shelter. With a smaller portion of income to spend on anything else, people will put off purchases that they can't afford. Using that proportional difference to claim "it's a wash" sounds like circular reasoning. At least, it doesn't seem to account for all the purchases people would have made if they weren't putting such a high percentage toward this one basic need?
I don't think that's correct, but I'm no economist.
That's literally a textbook definition of inflation.
Well something is wrong, because my equals in the 1970s had a higher quality of life than my peers do now. Maybe tradesmen just got left behind because those wages now include people making $150k as entry level programmers, etc.
It's describing an average. There are definitely subgroups doing both better and worse
It's not subjective though.
This is misleading from the first phrase. There is no way to calculate the "price level" because it doesn't exist.
When people choose their "basket" and its weights, that subjective choice determines a "price level".
There is no objective price level.
Drag doesn't buy a TV every week! Drag pays rent every week.
Critically, if you want one of those really high paying jobs you need to work in a market with insanely high CoL - compensation increases haven't been universal.
There's no objective measurement of "inflation". Inflation indexes are completely subjective and largely political.
If people want to use some index then they need to explain the index and justify it's use. Otherwise they're not providing any real evidence.