The Economic Expansion Is Finally Helping the Middle Class | Hacker News Reader

The Economic Expansion Is Finally Helping the Middle Class

nytimes.com

86 pointssethbannon104 comments

Note that "inflation" and "inflation adjusted" are not what you'd expect.

http://www.financialsense.com/contributors/lance-roberts/inf...

This is a natural consequence of tying social security (and other benefits) to inflation and Goodhart's Law:

https://en.wikipedia.org/wiki/Goodhart%27s_law

I've been meaning to do an analysis of inflation based on hours worked. It;s hard to redefine hours but I'm sure politicians will find a way!

The financialsense link looks a bit dodgy to me. The first thing that pricks me about it is the way he complains about some change that happened in BLS's CPI calculation in 1997 (which is described here: http://www.bls.gov/cpi/cpigmrp.htm). His response: But the manipulation of the data did not stop there. He seems to think that any change, no matter if it's justified on methodological grounds, is "manipulation". I imagine he highlighted this change because the shift after the change in methodology was down. He's entitled to his opinion, of course, but that doesn't make him correct.

His discussion of core CPI and the remark that "average consumers who quickly point to the fact the food and energy are big part of their daily lives" is also wrong, and the reason for using core CPI is usually discussed in textbooks (e.g., http://krugman.blogs.nytimes.com/2010/02/26/core-logic/). It has to do with the fact that people need to predict future price levels when signing current contracts, and thus having a volatile measure of inflation would not be a good thing.

For an example of how methodological issues can remain for a long time without being fixed, consider that the Dow Jones Industrial Average index is still an arithmetic average of share prices, not weighted by market capitalization like other indices. So fixing methodological issues is something worthwhile, and should be rewarded, not denounced as some kind of political manipulation.

If you're only attenuating inflation signals because of quality improvements, but never amplifying them because of product debasements, then yes, it would be fair to write that off as (politically driven?) manipulation.

Btw, here's a particularly egregious use of the logic: "oh, your cost of living isn't going up, because iPads are faster." http://www.reuters.com/article/us-usa-fed-dudley-ipad-idUSTR...

There's nothing weird about the logic at all. It doesn't take much sophistication to recognize that inflation measuring the cost of a basket of goods is affected when the goods change either through substitution or changes in quality.

Incidentally, the larger category encompassing computers is 0.29% of the calculation of CPI, and it has only dropped to about 44% of prices in 2007.

There absolutely are problems with policy makers trying to starve the statistical agencies of funding for political reasons, but the actual public servants and economists conducting the work are pretty boring about just trying to model and describe the real economy.

It's even worth noting that possible improvements to the accuracy of CPI have been aborted due to political reasons, but the problem was that people's social security checks would have been revised down unless the existing law was changed.

> It doesn't take much sophistication to recognize that inflation measuring the cost of a basket of goods is affected when the goods change either through substitution or changes in quality.

In theory, yes. It takes a little more sophistication to realize that, in practice, "the iPad being faster" doesn't actually cancel the burden of higher food prices.

I guess I'm not that sophisticated then. :)

It seems unavoidable that how much nonfood I get per dollar affects the burden incurred by a dollar spent on food.

One could consider how spending on different areas has changed over time. In nominal terms, while we make about 48 times what we did in 1955, we now spend about 17 times what we did on food and on clothing, 56 times what we did on housing, and well over 200 times on healthcare. [1]

Considering that we spend about 70 times what we did on large entertainment goods such as televisions and sailboats, does that mean we are able to spend less on other areas? Does it mean that even though we used to have to spend a lot more of our income to own a TV we need to buy more stuff to be entertained?

Anyway, I don't really understand what the crowd in the article really wanted. Are they ultimately arguing that he should vote to raise rates, because there is inflation that he's missing by using the wrong indicators? I'm guessing that they're populists since an explanation made them angry, but googling doesn't tell me that populists have a consensus opinion about raising or lowering rates.

If they want another indicator to be used as a basis for official cost of living calculations for things like federal wages and social security payment increases, they're getting worked up at the wrong person.

[1] https://fred.stlouisfed.org/graph/?g=792u

Again, I get the theory. The question is the practice. How, concretely, does the iPad's processor being faster cancel out food costs? Do you buy 3% less of an iPad? Do you save the time from its faster responses to work extra hours? (Er, well, except, even that doesn't work because the faster processor is canceled out by the updated app being hungrier...)

So, to rephrase the point one other way, can you walk me through a scenario in which someone "came out even" because iPad speed went up as much as their food prices (with adjustment for value weight etc)? If you can't, then we're basically in agreement.

Yes, the Fed should treat differently-caused price drops differently. Velocity-related deflation is not the same as technological deflation, and central banks should be more concerned with the former.

If some miracle technology makes clothes require half the inputs, the Fed should not take it as a signal to debase the dollar that much more to accelerate spending, so yeah, if they're thinking inflation is low because there was iPad technological deflation, that does sound very much like "doing it wrong". Why do you disagree?

> I've been meaning to do an analysis of inflation based on hours worked. It;s hard to redefine hours but I'm sure politicians will find a way!

The cynic in me says that they simply record fractional portions of FTE and FTE takes on different values over time and across industries.

I've been thinking of better models for inflation. HH debt as a percentage of income strikes me as a possibly useful metric. It indicates the extent to which expenses are outstripping income, though some of that may be due to demographic effects, e.g., student loans (for a young-skewed population) and medical or nursing home expenses (for an old-skewed one).

Median household income shows similar growth levels for ’92–’97 (7) and ’10–’15 (6). However, bottom 20 percent income vs. Top 20 percent income looks like 1/2 the growth at the bottom 92–’97 (10) ’10–’15 (5) vs top 92–’97 (20) ’10–’15 (10) for both periods.

So, it might be broader recovery, but the bottom is still failing further behind and the middle is not keeping up with the top.

The people in the bottom, middle and top aren't always the same people.

Going from a medical resident to doctor moves you from one income strata to another. It's not a sign of income mobility.

There is some income mobility in the US. However people generally make more money by changing what they do. Which generally means someone else ends up in the old job. AKA if a janitor goes to night school and becomes a mechanic that does not change what janitors makes.

Looking at the income of individual segments doesn't tell you anything about mobility.

Income could remain static, but people could move from higher to lower segments and vice versa.

The normal way to compare mobility is to look at someones income percentile at age X vs parents income percentile at age X. After all most people's income is ~zero as a young teen.

Agreed. I feel like this is a "can't see the forest for the trees" story. A median moving a few percent is pretty much meaningless in the context of the many millions who are struggling and suffering. The fundamental causes of inequality are not being addressed.

Serious question: how do you propose to address

(a) some people can't make meaningful contributions to the economy because they lack the intelligence to compete with machines

(b) some people can't work because globalization means that their potential contributions can be done cheaper by someone in the middle class overseas who is happy to work for less than US minimum wage allows them to work for

(c) some people refuse to work because the benefits safety net (including disability for unverifiable conditions (source: http://www.theatlantic.com/business/archive/2013/03/disabili... ) is more comfortable than work

>(a) some people can't make meaningful contributions to the economy because they lack the intelligence to compete with machines

The underlying assumptions of this question would require significant justification to accept them as approaching truth.

First it assumes the people are the problem rather then the job. Then, that 'intelligence' is the end all be all of valuable contribution. And add the 'machines will automate value creation away' and we've got a 'blame dumb poor people for not being able to keep up' trifecta.

>(b) some people can't work because globalization means that their potential contributions can be done cheaper by someone in the middle class overseas who is happy to work for less than US minimum wage allows them to work for

Define 'middle class' and 'happy'. This seems to be arguing for a race to the bottom but framing it as government interference keeping the magic of the market from happening while completely ignoring that minimum wage isn't even enough to keep up the cost of human capital in the US and that the 'cheaper' labor might have a lot to do with those wonderful happy low paid workers having no political voice to help protect them from absorbing all of the costs of negative externalities in their countries.

>(c) some people refuse to work because the benefits safety net is more comfortable than work

Again, the underlying assumption that people 'refuse' to work because they are comfortable not working. The hidden alternative being they get no safety net. The mechanism of either working or starve is somehow better? Markets can't work toward efficiency if people are negotiating against loss rather than for gain.

A plausible alternative theory is that low end work is broken rather than the safety net. We allow people to be paid less than their upkeep and keep the threat of pain (starvation, homelessness) just visible so that it motivates them to take jobs that pay less than their time is actually worth to them if weighed outside of that threat to their wellbeing. So, their decision is to work for mere survival or not work for mere survival and many make the rational choice.

Raise the top marginal tax rates, strengthen social safety nets (social security, welfare, etc). Use Congressional authority to raise wage floors (minimum wage, threshold for overtime), thereby pushing corporate profits into labor's pocket. Perhaps even reduce the work week by 8-16 hours, considering the massive productivity gains over the last 40 years, which has gone primarily to corporate profits.

Scandinavian democratic socialism.

EDIT: This is just to start.

None of this creates new jobs. In fact, it destroys jobs (higher minimum wage, higher taxes).

Do you have any thoughts on how to create jobs?

There are lots of studies that show that welfare dependency is destructive to goodwill; it's not JUST about giving people dollars.

> it destroys jobs

The bedrock of corporate profit is consumer demand.

We're in a vicious cycle where people are unemployed/underemployed -> consumer demand is depressed (because they have no money) -> companies don't hire (because nobody will buy their goods) -> people are unemployed

You have to break the cycle by first propping up consumer demand, and the most direct way to that is by giving consumers money to spend.

That's exactly what President Hoover tried to prop up the economy after the 1929 stock market crash.

And he would've succeeded if he was willing to blow up the deficit further.

That actually happened with our entry into WW2, sharp increases in spending and hiring, and immediate end to the Great Depression (note that weapons, ships, planes and the like are about useful to a peacetime economy as digging holes in the ground--the key is you need to hire a lot of people to make them)

And exactly how the WW2 recovery happened. Government created demand for products, and deficit spent until the economy roared back. Subsequent gov't surpluses from increased tax revenue were then used to pay down deficit.

Uh dropping the Hours for full time work. The DOL made the time and a half for work over 40 hrs per week to increase labor demand. Imagine a world where it's 6 hrs per day or 30 per week. More people would be employed. And since those hours are paid piece wise no ones hourly wage would decrease. That's how the labor force could increase.

> The DOL made the time and a half for work over 40 hrs per week to increase labor demand.

The only possible effect of this policy is to decrease demand for labor.

Reducing the workweek by 20% will create jobs, for those jobs in which output is a result of hours worked.

It's giving /some/ people money that is destructive to goodwill; giving /everyone/ money doesn't have the same downsides.

Your idea of Scandinavian democratic socialism seems to be rather misguided. You probably haven't lived here?

- Top marginal tax rates are not that different -- the difference is more in that the higher tax rates kick in earlier in Scandinavia, which is necessary because average earnings are lower. In the U.S., the high earners pay a larger proportion of tax revenue than Scandinavia. US: the top 2.7 % pays 51.6 % of federal income tax [0] while in Finland, the top 3 % pays 22.4 % of income tax revenue [1]

- Wage floors: Scandinavian countries don't have a legal minimum wage at all [2]. The minimum compensation for each job is negotiated in collective bargaining per sector, and several U.S. states already have higher and more broadly enforced minimum wages than what these per-sector agreements are in Scandinavian countries.

- Corporate profits to labor's pocket: compensation per employee as percentage of GDP at factor cost per person employed is not substantially different in the U.S. from northern EU. [3] Yes, it's somewhat falling because of technological development and increased regulation and taxation everywhere.

Overall, the difference in fact is that in many areas, the Scandinavian countries have less socialism, more market economy - more open competition and less protectionism. It seems that you think the Scandinavian success is socialism, when in fact it is neoliberalism. [4]

[0] http://www.pewresearch.org/fact-tank/2016/04/13/high-income-...

[1] http://www.stat.fi/tup/suoluk/suoluk_tulot.html

[2] https://en.wikipedia.org/wiki/List_of_minimum_wages_by_count...

[3] https://en.wikipedia.org/wiki/Wage_share#/media/File:Adjuste...

[4] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1629940

I'm targeting the same outcome by pulling different levers.

What is that outcome, and in what sense is it "Scandinavian democratic socialism"?

https://en.wikipedia.org/wiki/Nordic_model#Aspects

Again, have you actually understood how we here in Nordic countries have arrived in this model?

Your approach looks like a cargo cult to me: it lacks understanding of the basic mechanisms, and instead focuses on some external insignia and symbols.

Yes, I've studied the economic principals underlying Nordic socioeconomic success. Again, I believe other methods will need to be undertaken to achieve the same outcome, due to the drastic cultural and economic differences between Nordic countries and the United States.

That's not cargo culting. That's adapting to your circumstances.

At a macro level, labor has benefited alongside productivity—automation and globalization—in the 19th and 20th centuries. So the question becomes how much society should insulate individuals from economic change.

There are no guarantees that one's current skillset will always be relevant, one's current marginal value will increase, or that economic demand will remain in the same geography. Automation and globalization exacerbates these issues, but they're not new issues: textile workers in the 1800s destroyed machinery over concerns it would reduce the need for their labor.

You have no unalienable right to keep your job.

So I take issue with your hypothesis inherent in (a) and (b) that some people "can't work" because the economy has shifted. Opportunity and economic need for labor still exists; people need to adapt.

But there is an issue here, and the solution is (re)skilling. We need programs that help and support people of all ages to gain the skills they need to get a job in high-demand fields. A basic income might help, too—e.g., to avoid the catch-22 of needing money to move to a new town to get a job to get money.

If economic demand is dropping precipitously in certain locations, intervention action is needed in the form of state or county-level policy to retain or attract labor supply and/or economic demand.

If benefits programs are more desirable than an alternative of working a low-wage job, then "refusing to work" is logical. If waste and abuse is egregious, then the programs should be changed. But at the same time, we need to get comfortable with the fact that some people will choose to do the bare minimum.

I think each country should have a first responsibility to its own citizens - getting all of them to some standard of living before allowing immigration or offshoring or importing. This would work for all except a few countries (and then importing/offshoring/exporting by other countries would be able to help them.)

We could simply define jobs for people, and stop importing products in those categories. Need more jobs? Restrict more product importation and offshoring.

I should add that I've worked in factory automation - fully lights-out factories - and we are capable of creating a great quality of life for people. This isn't the early 1900's, we can create all the jobs we want for the people who want jobs.

And there are competing studies about the effect of the safety net - since countries with the best safety nets also usually have the best economies and the most innovation (some think it is tied to the ability to take risks without becoming impoverished if you fail.)

> We could simply define jobs for people, and stop importing products in those categories. Need more jobs? Restrict more product importation and offshoring.

It's becoming more common to advocate for scaling back globalization as a solution to local economic problems. It might even work; I wonder if there are any downsides?

The commonly cited downsides include (a) rent seeking among protected industries and (b) prices of domestically produced goods are higher. How true these are in practice is probably somewhat controversial and difficult to measure.

Why not get rid of minimum wage? We'd open up opportunities for all sorts of new wage deals and payment structures. What's the point of having people on welfare who could be working as a servant or doing some sort of work? It would also disincentive automation when labor prices can be driven down and suddenly everyone becomes employable.

As someone who immigrated to the US from a country where people have "servants" I'd fight very hard to ensure we never have such a system here.

Out of curiosity, may I ask which country?

Bangladesh.

That's one way to create a permanent underclass and cause a whole lot of other social issues.

See the 16th, 17th, 18th, and 19th centuries in the US for plenty of examples of what this would look like.

You mean the transition to an information based society but without author-centric notions of copyright?

Most of the successful companies of the last few decades deal mainly in intellectual properties. Most of the successful companies in technology derive their profits from other people freely giving away their intellectual property.

Once again, I foolishly wonder why the problem people identify boils down to envy and why I should care that people want things they don't have. I get that calling it "inequality" as opposed to "envy" makes it more emotionally resonant but it doesn't provide any actual reasons for me to latch onto.

Is it some sort of attempt to head off a revolution that will never happen?

Many people cannot afford adequate food, shelter, and healthcare because of the things they don't have. There's nothing wrong with envy when you're in that situation.

> Is it some sort of attempt to head off a revolution that will never happen?

Sort of? I don't think Trump would be doing as well if inequality weren't so high. And as inequality gets worse, I think Trump-like movements will strengthen. I'm not really worried about an armed revolt, but that doesn't mean everything is fine.

>The fundamental causes of inequality are not being addressed.

Well of course not! That would require breaking up monopolies and oligopolies, restarting the intellectual property treadmill that moves ideas into the public domain, and fighting rentiering in land, natural resources, and means of production by spreading ownership through the working population.

A society built on rents cannot reduce inequality without re-building their society on actual, useful production.

Those few percent mean that millions who aren't at the top are moving ahead.

People are leaving the middle in threes - one goes to the lower bracket, two move up.

It's not like we have wildlife ear tags; these are abstract atoms in an aggregate measure.

Nominal income growth means nothing. Real income is not growing.

From the article:

  inflation-adjusted incomes for the mass of Americans have finally started to rise in a meaningful way

That's encouraging, but the absolute level of real incomes is still lower than it was before the recession.

And you believe the government's inflation statistics?

When so much of their spending is automatically tied to them?

Just because there's a potential conflict of interest doesn't mean they're lying. I think this heuristic will quickly lead you astray if you rely on it too heavily.

Here is the same argument, substituted with different groups:

- Do you trust climate scientists, when their prestige is tied to how important their field is?

- Do you trust the science on vaccines, when the public health system relies on people's willingness to be vaccinated?

- Do you trust that Obama isn't lying about being an American, given that was running for President?

- Do you trust yourself, given that psychological research shows that data that contradicts a strong belief tends to reinforce that belief?

If you're going to call someone or some group a liar, I think it takes a lot more evidence than just 'they might have a plausible incentive to lie'.

To answer your question though, I have several technical concerns about how CPI inflation is calculated, but I definitely don't think it's due to someone actively deciding to fudge the figures.

The 2nd sentence was just a rhetorical point designed to nudge people into having some doubt about the statistic. I myself came to that conclusion long before appreciating its effect on the government budget, from watching the CPI and what I believed to be "true inflation" starting in the dreadful '70s (yep, I remember Nixon's wage and price controls), when I believe it was a lot more honest, say at least through a good part of the '80s.

Your subpoints aren't quite all the same, a good Upton Sinclair quote that's been bandied about lately "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!", so e.g. #2 doesn't apply, the public health system doesn't make much money at all on vaccinations, that's more of a True Believer thing. See e.g. Governor Gardasil.

And I tried real hard in the 1968-80 period, 2nd grade through first year of college, and of course beyond, to seek out the truth at all costs, having decided at the end of 1st grade that science was my calling. And I think I got somewhere, although of course what you cite is always a danger.

> but I definitely don't think it's due to someone actively deciding to fudge the figures.

What they've done instead is change the CPI formula a couple times to avoid it from reflecting price increases.

For example, they replaced steak with hamburger a few years ago when steak got too expensive.

There's some legitimacy to the substitution approach, because people do e.g. switch from hamburger to chicken when the former gets more expensive (steak, if it was substituted by hamburger, is fraud), and at least this is a special case of production issues vs. something driven by "secular" inflation (drought really wacked cattle production, as my father's friends who raised them attested at the time).

But it's easy to take too far, and any consumer who nonetheless insist on having some steaks, or more expensive hamburger, you'll not be impressed by this statistical substitution trick.

You can't calculate inflation over the long run without changing the components of the basket, and it goes both ways:

http://www.bls.gov/opub/mlr/2014/article/one-hundred-years-o...

For example, the average household no longer purchases coal or firewood to heat their home, and we no longer buy straw hats. That seems completely reasonable to me. People's preferences change.

On the other hand, we've added radios, TVs, cars, etc. to the basket.

All the while the three major expenses in real-life:

1. health care premiums -up 15%/year,

2. college tuition -up 5-7%/year,

3. real-estate/rentals -up 6-10%/year (varies depending on the market)

Nice spin.

Get ready for more "positive" news about the economy, only to be "adjusted" after Nov's election.

These figures are already inflation adjusted. From the article:

> inflation-adjusted incomes for the mass of Americans have finally started to rise in a meaningful way

Now, we can have a nice technical argument about whether CPI truly represents the cost of living of your average American, but I suspect that wasn't the point you were trying to make.

http://www.bls.gov/cpi/cpifaq.htm

  What goods and services does the CPI cover?
  ...
  HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
  ...
  MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
  ...
  EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);

Yeah... The BLS lists medical services/commodities inflation rate for 2015 at 4.1%/3.6% respectively [1]. Why did my premium go up 20%, then? Why did most people's premiums go up at least 10% or more? Their methodology just doesn't match reality. Just like the 4.9% "unemployment" rate.

BTW, the government has vested interest in under-reporting inflation - the COLA is indexed to it.

[1]http://www.bls.gov/news.release/pdf/cpi.pdf

[2]https://www.ssa.gov/news/cola/

Yes, and it looks like Medical CPI is a lot closer to other sources that I randomly looked at:

* http://www.insurancejournal.com/news/national/2015/11/12/388... - Around 4% per annum since 2010

* http://www.ncsl.org/research/health/health-insurance-premium... - Around 4.5% from last year

* http://www.commonwealthfund.org/publications/blog/2016/jan/2... - About 6% increase for ACA plans from last year

There can be all sorts of reasons why your premium went up faster than this: 1) your plan is atypical 2) you're living somewhere or in a demographic that is atypical 3) your insurer didn't increase your premium for awhile, and then lumped all the increases at once.

Just like if you live in the Bay Area, you're going to see annual housing price increases that are large multiples of what the rest of the country sees...

No, I am just self-employed (insured through a small-business association) and need to cover the cost increases myself. The reason other people may not see as much, is because their employers eat up most of the increase.

Also:

From Politico: (10/30/215)

"Rates released by the Obama administration Friday and analyzed by consulting firm Avalere Health found that the lowest cost “silver” plan – the most popular option in the law's insurance marketplaces – will rise 13 percent, about four times the increase for plans this past year."

"Premiums for bronze plans, which cover 60 percent of costs and offer cheaper premiums than silver plans, are also rising sharply this year. The cheapest bronze option will increase by 16 percent on average across the country, according to Avalere’s analysis. "

http://www.politico.com/story/2015/10/obamacare-cost-increas...

Yeah, I really hate that logic:

"Hey! Congrats on that 10% increase in compensation!"

'Huh? My pay hasn't gone up, what are you talking about?'

"Oh, it's not your salary -- your benefits went up. Your employer buys you more health care."

'Oh, wow, so I'm getting more coverage with my health plan? Faster lines? Quicker recovery? Less out of pocket? You're right, that is a pay bump, I need to look more closely!'

"Oh, no, you get none of that, and it's actually worse on most of those criteria; it's just that they're charging more."

'So, I get the same benefits, but someone pays more to get them to me, so that counts as a pay bump?'

"Yep!"

'...'

I feel like 4% is way too low from what I've seen, but often the reason employees see big jumps is because the employer covers some flat amount, and then the un-covered part is what looks to be jumping.

So if your employer covers 750/month, say, and you were at 740 for 2014, then up 5% is 777 for 2015, then 816 for 2016. For you, that jump is 0 to 27 to 66. That feels like a lot.

This just a theory I came up with just now, though

Every company is different, but as the one who oversees the healthcare benefit for my pico-business, I have the premiums figures at the employer end, and I certainly do not see 4% yoy increases, it is closer to 2-3X that, and while multiple anecdotes are not data, other small business owners I speak with report the same. Likely the 4% surveyed figure is coming from the big employers who have negotiating leverage. These inflation figures come from self-reported numbers (I occasionally get the survey requests), and not from the federal government actually dipping into the insurers' databases and retrieving real data.

The situation is admittedly all kinds of outrageous. Anything short of the immediate (within three months) death of the medical industry as the US knows it will fail to bring about competitive, meaningful, lasting reforms. Personally, I've come to terms with accepting that for the most part, I can only realistically, roughly afford 1960's-level Cuban embargo-like care standards in the US to be able to give my children a better shot: basically, anything really expensive like cancer or some chronic neurological wasting disease (dementia especially), and I'm euthanizing myself with CO2. I terminated my term life insurance upon realizing the odds get better with each passing year that I will come down with a geriatric-related condition, and euthanasia to protect my family's financial standing from medical bills (the number one personal bankruptcy cause in the US) is a disqualifying event in all life insurance policies.

I carry catastrophic coverage to handle a situation like a broken limb, and we choose policies with 100% in- and out-of-network coverage, but situations that become apparent that will develop into really financially-draining scenarios over time will quickly start an evaluation of the breakeven point to pull the ripcord, so to speak. Not pleasant to think about or discuss, but necessary to assure my family's future. I certainly don't advocate anyone else do this, just sharing my own personal planning hoping to see other non-traditional reactions posted.

At about the same time, I rejected out-of-hand the blind acceptance of the party line from the medical establishment, and instead adopted a verify-first-then-trust-the-data approach. If blood panel results I purchase myself over a period of months and years don't mesh with the received wisdom of the medical establishment, then I go with the data and ignore their "wisdom". When you hear "keep doing whatever it is you're doing that is getting these results" from medical professionals enough times, after they incredulously interrogated why you're engaging in what they professionally have been trained to counsel as risky habits, you begin to trust your own judgement. Test, Test, Test, and make incremental, measurable changes. The fitness community over the Net has been of greater help to my fitness level and overall medical condition in the past several years than all the doctor advice I've received over many decades. My personal conclusion is the US farming, food, pharma and medical industries, government regulatory agencies and professional associations have their pecuniary interests so hopelessly intertwined, it is safer to simply assume the industries (not individual practitioners, many of whom deeply care about their corner of the world and are outstanding) select profit over any other factor to the point they are functionally openly hostile to your health.

The initial ACA subsidies are running out so premiums go up. And because premiums go up some young, healthy, but not too wealthy people decide to go without insurance and pay a penalty instead. Especially since if the worst happens you can manufacture a qualifying event to let you buy insurance when you need it. Which might mean even more healthy people leave but hopefully the cycle with reach an equilibrium after a few iterations.

The BLS rate is the amount of money charged to insurers, not the money they charge you I'm afraid.

If you don't like the official statistics you can always compare against private measures like the Billion Prices Project.

http://bpp.mit.edu/

The fundamental problem with basket based inflation measures is if gas prices go up or down it's generally an identical good. If t-shirts quality declines the price may drop, but you may need to spend more money on t-shirts.

Sure computers may 'get better', but it's software we care about. If Word 2050 needs a X$ laptop then it does not matter how fast that laptop is it's still the same quality as the laptop running Word 2040.

Net result all inflation measures are off which is one reason so many things keep growing faster 'than inflation'.

The CPI does track these changes:

http://www.bls.gov/cpi/cpihqaqanda.htm#Question_1

If a t-shirt's quality declines, then it's actually getting more expensive, and that should be tracked.

If computers get better, then that should equally be tracked, otherwise you're introducing an asymmetry, where products get better -> price index doesn't change, but products get worse -> price index increases.

In fact, computers have rapidly gotten both better and cheaper over the last decades. A new 486DX2/66 machine ran around $2500 in 1992 -- now a basic desktop shouldn't run you more than $300-400.

First off, "The traditional CPI solution to this problem is to temporarily remove an item from the sample when its quality has changed." Lowering quality is one of the standard ways of dealing with rising production costs so this really does present a large bias.

> gotten both better and cheaper

last decades sure. Last five years somewhat. Next five years ehh, possibly.

But CPI is known to overstate inflation. The reason people think inflation is more than it is is simple - we've been trained from birth to notice prices going up, but not prices going down.

In computer processing terms: https://en.wikipedia.org/wiki/Amdahl%27s_law

If you need to by X, Y, and Z and Z get's cheaper it can only save you so much money. Price increases on the other hand are unbound.

Price increases are bounded by substitution of goods and "what the traffic will bear."

The things - real estate, education, health care - that are inflating most rapidly are doing that because they are subsidized. When you subsidize a thing, it costs more and you get more of it

Ag subsidies are different because that's a sort of Nash equilibrium - the cost of inventory underruns exceeds the mild price increase from overproducing agricultural products.

Any many things have much lower inflation than the numbers show too. I'm reading The Rise and Fall of American Growth right now and one of the things that surprised me is that the same good sold in different ways has it's price tracked separately. So when department stores started offering lower prices than specialty stores that wasn't reflected in the inflation statistics.

If you have an employer plan, maybe your employer cut benefits?

I know several people that had that happen recently.

I'm more concerned that the inflation calculations don't account for decreases in product and service quality. It's not really a fair comparison.

I don't think inflation adjustment is what OP was referring to be "adjusted". It's a very common practice for the Fed bank and other econometrics outfits to release "revisions" several months after the initial publication, and with startling regularity the revisions are much less optimistic than the original "headline numbers".

https://pbs.twimg.com/media/Cr9hqjsWcAA_liW.jpg

[Fig. 1]

Luckily, #1 and #2 don’t affect most europeans, but the economic expansion still affects us.

And while Germany is decreasing taxes, it’s increasing spending, and paying off debt.

The best place to live if you’re middle class and young seems to be Germany right now.

well, three categories which we can blame government intervention for spiraling costs.

1) setting so many requirements while still upholding rules preventing competition across state lines. formulating laws so the costs are passed onto those who pay the insurance bills

2. making loans with out determining worthiness of the student or schools.

3. preventing new housing being built to protect a valued voter and donation base.

Judging from the last few decades the economy is due for a blow-up soon so incomes will drop again. This is a little late in the cycle.

enough to offset the debt economy?

dubious

I am seriously confused. Most intelligent people I meet are aware of the "debt economy" aka debt supercycle aka shop-till-you-are-maxed-out phenomenon being caused by ultra low interest rates. Surely this theory is not just held by zerohedge readers any more and by normal people.

Once consumers are maxed out, how the heck will they spend in the future? Surely the fed knows this and has a viable plan. Else, they are kicking bigger problems to the future, aren't they?

By normal people? I think you are greatly overestimating people's knowledge of economic theory. Most probably only know of trickle down because it's mentioned in the news.

There was a recent article by NYT about the Chase Sapphire Reserve credit card. Look at the comment section, most don't know how to do cost benefit analysis. All they saw was a $450 annual fee. A good amount still talk about paying with cash only.

This doesn't mean I'm much better off. When you mentioned debt super cycles I have no idea what you mean. I'm only starting to get into economic theories. I'm 27, can be considered upper middle income, and given millennial income calculators in top 1% of earnings (not saying much since most people in the valley can get that, ~$70k income for that level). These theories does not have a perceived effect on people's day to day lives. So a lot don't know about them or don't care. Example, every few weeks I see an article in the front page about negotiating salary. This isn't a gauge of knowledge, but of interest. Everyone goes through negotiation situation, value is obvious, more people learn about it.

> All they saw was a $450 annual fee.

I read the article [1] because I was dubious about the potential cost/benefit given that I pay zero dollars in interest on my cards (I pay the statement balance every month), and I found that the benefit is for rewards programs.

My understanding is that rewards programs are an arms race: the merchants cover the extra rewards amount. That means that they're bundling the cost of rewards into their products anyhow and charging you for the "pleasure" of getting your money back. If you can get in on it before the costs rise to the full amount of the reward, then other people subsidize your reward by purchasing the cost-adjusted product without getting rewards. I'll pass on paying $450 to further that, no cost-benefit required.

1) http://www.nytimes.com/2016/09/13/business/dealbook/credit-c...

Irony that you did cost benefit on a much broader scale (merchants and consumers as a whole) instead of a personal finance level. And you are right about merchants paying more. Didn't make sense when I was running a store until I read a paper on reward points and transaction fees.

This type of subsidizing happens around us, one that comes to mind is taxes. 401k and other tax shelters. People that are taking the greatest advantage of these have money to spare, and read up on the advantages (or hired someone that has).

Also, since you pay off your statement every month, reward cards make a lot of sense. Haven't seen one that requires a revolving balance. For me it's about optimizing returns on spend I already have.

I have no idea what a debt super cycle is and I have a graduate degree in economics.

You must be thinking top 1% in the world. To be in the top 1% in the US, you need more like a $450,000 income.

http://money.cnn.com/calculator/pf/income-rank/

He's trying to measure himself against the average single person his age. Of course, more realistically according to the Bay Area metric, he is below the household poverty line.

Yes. This is what I did from a calculator by fusion http://fusion.net/story/41833/wealth-gap-calculator-are-you-...

Mixed up my numbers, top 1% for age group ~106k. Bay Area metric I make more than median household, which is scary since that means the average single income family in the Bay Area would be barely scraping by (not hard to believe).

Just because you make more than median doesn't mean you aren't still below the household poverty line. Once you grasp that, you'll begin to understand the completely upside down economy of the Bay Area. Palo Alto considers below 250k/y household low enough to qualify for subsidized housing. The top 1% make $450k and the top 1% in San Francisco make nearly $1m. You are in a crazy context you aren't yet fully realizing.

Not sure what craziness you think I don't perceive. My initial comment is to demonstrate how a person in my generation that is doing relatively well financially, are not versed in the economic concepts the parent comment provided (debt cycle). That it is not normal for us to know such concepts.

Prior to the global financial crisis, Neoclassical Economists, i.e. the ones running the US Fed, would not even consider the level of private debt as a significant macroeconomic metric. That's changed slightly, but not really. They still delusionally believe that private debt doesn't matter UNLESS there's an exogenous shock which forces interest rates to the zero lower bound. They seem unwilling to accept the reality that rising private debt drives macroeconomic demand and that stabilizing or reducing private debt triggers an endogenous crisis a la Hyman Minsky's financial instability hypothesis.

But household debt peaked in 2007.

What's wrong with a debt economy? It allows startups to overthrow incumbents with relative ease, and without it you get an economy like Germany's, dominated by conservative companies founded 150+ years ago. There are certainly advantages to the German system, but it has plenty of disadvantages too.

savings and accurate interest rates fuel a health economy, not debt.

> savings

Every debt is matched by an equal and opposite asset. Savings create debt.

http://www.investopedia.com/terms/b/bank-deposits.asp

E.g. you give a bank $1, it creates a liability for $1 on its balance sheet, and it also goes out and lends that cash to someone (allowing it to create debt somewhere else).

The question you should be asking is not the total level of debt, but which groups in the economy are indebted. I agree that consumers as a whole should have positive savings.

http://www.investopedia.com/terms/f/fractionalreservebanking...

Beyond that, I said "and" not "or". Interest rates and savings should be organically tied together. They should signal each other. Nowadays, they do not.

No doubt we all, including central banks, would be happier if rates were at 5% instead of 0%, but then we'd have much worse mass unemployment as an aftereffect of the financial crisis.

The 0% bound you see today is the lesser of two evils.

solve government tampering with more tampering while continuing to blame "captialism". Glorious.

What is savings, if not a loan to an institution?

I said saving AND accurate interest rates, not "or".

Could have fooled me

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