Great moments in financial analysis from Tom Bevan:
Academics & economists: We can't understand why people don't think the economy is great.
WSJ: Rise in prices from Dec 2019 to Aug 2023:
Gallon of milk: +12.5%
New car: +29.9%
Dozen eggs: +32.5%
Gasoline: +49.4%
Let's expand our view a bit:
If you cherry pick and don't account for wage growth, you can make anything look terrible. In reality, overall prices have increased 18.4% since the end of 2019¹ while overall wages have increased 19-23%. That's no great shakes for American workers, but for most people the relative cost of things has barely changed at all over the past four years.
¹At most. Prices have increased only 16.0% according to the PCE price index.
Relative cost of things is not something most people understand.
When their wages go up they think it's great, but when they pay more for eggs at the store they think they're being robbed.
Just staying even is not what most people want to do, or will take with a grain of salt.
Expanding on this, the cost of gas is going to be one of the biggest factors in consumers’ perception. “Gas is 50% more than in 2019?! The economy is terrible!!”
It really is all about gas prices.
Because they're easy to fume over while steaming along alone in your car with Alex Jones on the radio.
Every time you hear a complaint about gas prices ask them why they drive an internal combustion engine.
If they are like most Americans with jobs, they drive to get to work.They also drive to go shopping and a host of other daily reasons. Owning a car is a requirement in most of the country.
I find this hard to believe. Even in actual (not inflation adjusted) dollars gas was more back at the tail end of the Bush administration than it is now. Honestly it is pretty much the only thing these days whose high price I am not shocked by. For me it's the cost of food that seems outrageous.
Not for me and my wife. Our cost for driving our new EV is down 83% since 2019. That's the cost of the electricity required to get the same mileage as my Toyota Prius gets at about $5.50 a gallon. If I look at cost of maintenance it just gets better - a lot of subsystems needed for a gas car are GONE. My first thought on opening the hood was: "Where''s most of the engine gone?" I suddenly realized the little Folgers coffee can sticking out of the front of the engine was the electric motor (not even a BIG Folgers coffee can. The torque is insane!
Come on now. How else are we going to play victim?
You've left out housing and rent here, which is I think where most people have really been hit because it's easily the largest monthly expense for most households.
Aside from that, though, I wish people would really understand what was behind a lot of these increases, and how it's not really something any administration could address in the short term. While most of the supply chain issues we were dealing with in 21-22 have largely cleared up, food prices, especially for milk, meat, poultry, and eggs are staying high because of the severe drought across much of the midwest this summer, esp in Kansas, Texas, Nebraska and Iowa. Thank climate change for a lot of that. The high gas prices are mostly Saudi Arabia and OPEC wanting to fuck with the Biden administration in hopes of electing Trump or another equally subservient Republican president next year.
The main thing about inflation is that generalized price increases tend to be "sticky"; inflation happens frequently, deflation almost never. It also takes time for inflationary pressures to work their way through the economy, usually through several cycles of price increases. It's that "work their way through several cycles" part that means that Team Transient, including Kevin, have been over-optimistic about how fast inflation would subside. Once the covid related supply shocks had triggered a burst of inflation, it was inevitably going to take years for the reverberations to die out.
This is also generally true of wage increases and asset/wealth increases.
For most of the people who owned a car(s) and a house prior to the start of the post-covid inflation (even if both were partially owned by the bank), they have made out pretty well as these costs were stable for the owners while their wealth increased. Stats dont really cover this scenario in a simple chart, but its a fairly common situation.
And the price of eggs is up due to HPAI. Highly Pathogenic Avian Influenza. Millions of hens were disposed of because they wouldn't wear masks or get vaccinates.
No hens, no eggs. And shortages of eggs.
That was last year -- flocks of laying hens have mostly been replenished now. Egg prices have come down quite a bit from their all-time highs, but are still higher than they were a couple of years ago. The price of feed used in industrial egg production is up a lot though, mostly due to soy and grain prices, and that's contributing to the cost now.
The price of chicken feed also went sky high. It's not chicken feed anymore.
If you are on a fixed income or work in industry under financial stress and haven't increased earnings by 20%, I guess you are just plain shit out of luck.
The UAW will likely do OK in this round.
Charts and statistics are all well & good but Kevin I sometimes wonder if you live in the same world that I live in. My main sources of income are social security and a small pension. Do you think my "wages" have gone up 19-23%?!!!!?
I just googled it, and it said SS payments went up 5.9% in 2022 and 8.7% in 2023. That's about 15.1% (compounded) for SS payment increases. Did I figure correctly? Also, my pension (USPS) has increased by some amount as well.
Good work, and since we're talking about a four-year span, let's also factor in the 2021 and estimated 2024 COLAs. They bring the Social Security increase to 20 percent.
So the 58% pf Americans who are unhappy with the economy, believe he made their circumstances worst, under Biden, are either Republicans or ignorant of their own circumstances?
https://www.cnn.com/2023/09/07/business/us-economy-biden-approval/index.html#:~:text=By%20almost%20any%20objective%20measure,from%2050%25%20a%20year%20ago.
All Republicans are always ignorant of their own circumstances.
Actually Americans do not really feel bad about their own economic situation - Krugman:
"Here’s what the Michigan survey found when it asked people to compare their current financial situation with their situation five years ago; numbers greater than 100 mean improvement. That number has slid a bit since the beginning of this year, but it’s still quite high — in fact, as high as the average for 2019, when the Trump administration was boasting nonstop about the economy"
Full column (behind paywall): https://www.nytimes.com/2021/11/09/opinion/economy-inflation-supply-chain.html
Other surveys say the same. So the economic statistics and people's responses about their own situation demonstrate unequivocally that the economy is doing well. Republican propaganda says the economy is bad and almost all Republicans and some others believe it or say they do.
Of course some people who have not gotten raises have grounds for complaint, but that is not the reason for the overall discontent with the economy.
Every American thinks that because they are smart and hard-working, they are doing much better than average. Just like we all think we’re much-better-than-average drivers.
Here I am again to rant about disaggregated data. House price increases only significantly affect first-time buyers and those moving from static to dynamic local markets. Renters see bigger increases when relocating vs. remaining in the same unit. SS has COLAs, pensions and annuities don’t. Meat prices don’t matter to vegetarians and vegans. Different subgroups experience ‘inflation’ differently. Your personal experience of inflation, and your neighbor’s, won’t be the same. A number of organizations offer online calculators for one’s ‘personal inflation rate’. Of course, users of these are self-selected, not a random sample. Using the latter, or applying known demographic info, could give us a better idea about the patterns of impact of rising prices across the nation.
"SS has COLAs, pensions and annuities don’t."
Kevin should be aware of that. In fact, I'm sure he is. So what are we to conclude?
Is this mean or median?
Also, I'm skeptical of the point put forth in this post given the handwave-y nature of it and the fact that it oozes privilege/lack of perspective.
Average wages have gone up, according to whatever source, but actual measures of how people are doing are pretty bad. The percentage of renters who are housing cost burdened hit a record high in 2023 (essentially half), and the percentage of homeowners who are housing cost burdened hit the highest level since 2013 (22.7%). That's half of renters who are paying half of their take-home on housing cost alone, which is goddamn stressful. And that's 1/5 of all homeowners who are paying half of their take-home on housing cost as well. That's a lot of people who aren't doing well, and it's a higher number than it was in 2019.
But sure, average wages (however they're measured here) have gone up roughly as much as inflation has. Sure.
What that tells me is that some people got wage boosts, while ever more people are being left behind and one of the primary drivers is right there in the goddamn fucking chart.
I sure like how there's no mention of being wrong about inflation being the pea under the pile of greedflation mattresses.
The ongoing housing shortage seems like a different issue than the post covid inflation spike in goods and services.
This post doesnt appear to say that everything is puppies and rainbows, instead it gives a perspective on how inflation and wages have played out.
It's not a different issue - housing is included in measures of inflation. It's 1/3 of the calculation (arbitrarily - it should probably be more like 40% weight to match the approximate percentage of take-home pay that seems to be the average).
I want Kevin to tell us where people saving cash for a major purchase can put their money and get 18.4% annually (tax free).
What a disgrace to breezily dismiss people who are not protected with COLA or strong employer demand, because they aren't "most people".
If Democrats want to peddle this "explanation" for why inflation isn't a problem, despite what they experience, then be prepared to say "Hello Trump!".
It was 18.4% over the course of almost 4 years. 4-5% a year.
People without a home, a job, a retirement accouny or assets were certainly hurt....but thats true no matter the inflation rate. This post doesnt breezily dismiss any of those people.
Commenter “jdubs” replied with this to one of my comments on a recent post:
“… I dont think anyone anywhere has argued that inflation isnt a problem....”
This comes close!
How is that? This post shows that inflation occurred (problem) but other things also happened that should be taken into account.
Keep trying though!
Kevin literally said inflation hasn't hurt most people. He said inflation isn't really a problem, just not in so many words.
It's a bit braindead.
Whereas I interepret it as him saying that inflation isn't the problem most people think it is. And I interpret your 'just not in so many words' as literally putting words in his mouth.
What he writes sure comes across as "See? Everything is fine. Inflation is a nothingburger."
This bit isn't even correct or consistent with his cited data:
"for most people the relative cost of things has barely changed at all over the past four years."
It's whataboutism, but from a pollyanna-ish place of privilege.
KD are you out of your mind, citing **AVERAGE** hourly wages and not median?