Andrew ([info]prock) wrote,
@ 2008-04-25 10:15:00
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Entry tags:inflation, isomorphisms, markets

A rose by any other name...
One of my math professors used to frequently ask the rhetorical question; "If you call an elephants trunk a leg, how many legs does it have?"

In a similar vein, I present the following chart, found at the wonderous weblog The Big Picture.



Inflation is currently comparable to the rate of inflation in 1981. That is to say, if we use the methodology from 1981, the inflation number is roughly the same. Of course, the logical question is; "What did we call an elephant's trunk in 1981?"


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[info]walterzuey
2008-04-25 07:17 pm UTC (link)
So, inflation =1?

And given that last year, I would have to spend many thousands of dollars a year MORE for equivalent housing, my food and gas bills just aren't going to get me to seeing it.

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[info]prock
2008-04-25 07:53 pm UTC (link)
I never claimed that either today's methodology, or 1981's methodology were correct. I only pointed out that given the 1981 methodology, the numbers for today are comparable.

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[info]jpmassar
2008-04-25 10:03 pm UTC (link)
But does the methodology have to change...

to reflect changes in society and technology?

If so, the comparison is between apples and orangutans.

If the changes are politically motivated, then yes, it's
more valid to compare to 1981.

(I have no idea which is true; probably some mix of both)

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[info]pimpofpoker
2008-04-26 12:13 am UTC (link)
Obviously, there is political pressure by politicians to constantly lower the accepted inflation rate in order to appear more successful at managing the economy...not to mention appealing to corporations who base much of their employee raises off the CPI.

It's not apples or orangutans as much as it's a neverending banana peel the average american working is slipping on as his economic power evaporates.

I'd like to know what idiot figures inflation out. Ya, my electricity is cheap again...my phone is cheap...and despite what they say, food is cheap as hell. I just paid $1/6pk for diet coke. Sounds fair. But, just go try to buy an average new house these days...even with the current housing price drops...the property tax, mello roos, insurance, and HOA fees are more than many families can afford not to mention the house payment itself.

BTW, Motherfucking $4/gallon...after other bills, that's a hell of a lot of free money being eaten up at the gas pump. I don't know how people can afford it. I have a decent amount of jack and I still find myself watching the mileage.

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[info]plizak
2008-04-26 01:21 am UTC (link)
Check my latest post if you want to discuss $4/gallon gasoline.

Inflation is now figured as, it used to cost $5/lbs of roast beef, but it's too expensive now that it went up to $12/lbs, so we'll just substitute the price of ground beef into the formula instead at $3.50/lbs. Hey, inflation is lower, that makes up for the increase in gas. Next!

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[info]plizak
2008-04-26 01:21 am UTC (link)
Friended you (via [info]doooook

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Economic adjustments
[info]freelikebeer
2008-04-26 11:14 am UTC (link)
There are lots of unacknowledged dependencies on the inflation rate. I'll spare you a litany and offer up the moral hazard problem [I *DID* learn something in the subprime meltdown]. The federal civil service and military service pay bands adjust annually [-ish?] based on inflation. High inflation rates would may federal operational budgeting harder [and they may have to do MORE with LESS, heaven forbid].

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Re: Economic adjustments
[info]gunga_galunga
2008-04-26 01:53 pm UTC (link)
To say nothing of social security increases being tied to the inflation rate.

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[info]michaelsullivan
2008-04-26 06:38 pm UTC (link)
It would be interesting to see what inflation looked like in the 70s 80s and 90s under the different formulas.

It's possible that the changes reflect structural changes in what people buy or need to buy that are semi-legitimate. Meaning that the <1983 method makes more sense for 1983 than the >1998 method, and vice versa for 2000-2008.

Hard to judge that without looking very careful at all the data.

But the pre 1983 measure doesn't pass the sniff test for me. your graph suggests that if that measure is accurate, that the cost of living has doubled in the last 8 years, which doesn't seem right to me at all.

On the other hand, the numbers in the 70s and early 80s sure did pass the smell test. It did feel like CoL doubled or more in 7 years at the time. My dad's salary more than tripled between 1975 and 1983, and the only event that made us feel appreciably wealthier was growing savings and when my mother started working again in 1980.

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[info]pimpofpoker
2008-04-26 07:03 pm UTC (link)
By far the most major expense is housing and inflation of housing in the last 8 years excluding the recent tanking was at the peak much higher than 100%. So, it passes the sniff test here.

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