I think this is all correct, but I would add 2 points that I would like you to address in future columns. (1) I think the affordability crisis isn’t primarily about luxuries like burritos; it’s things that people need to have for a decent middle class lifestyle where prices have really skyrocketed: housing (especially in places with good job markets and schools), healthcare, education and childcare. (2) While wages per your data have generally kept up with inflation, they haven’t gotten ahead. Most importantly they haven’t kept up with increases in productivity, with a larger and larger share of national income going to capital rather than labor. This I think creates negative perceptions among workers, including feelings of being on an endless treadmill and never getting ahead, and also that the economy is rigged in favor of owners over workers (and my understanding is there’s a lot of data to support that belief).
Dr. J: As always, the breezy prose overlays a carefully documented and insightful exposition. Without gainsaying any of that, I'd like to propose that a small comment midway in has important impact: "Since averages can hide a lot,..." It is, after all, macroeconomics, and central tendencies are the order of the day. But I think there would be much to learn from the distribution of many of the factors you examine, that is, broken down by, say, income or gender or ethnicity. With the markedly skewed income distribution that we live with, those central tendencies are likely to be highly skewed as well. I wonder if similar curves by income level might tell us something about the difference between the data and what people perceive.
I've been asking my phone repeatedly in recent days about inflation. It's told me that since 2000 costs have doubled, led by health care, housing and college/university. It's also told me that income has doubled. Then I just sit here wondering why I feel so poor today when I didn't feel so poor in 2000. Now, I'm probably considered at or just above low income -SS and some investment income - neither of which has doubled.
The most noticeable cost increase for me, besides groceries, has been home owner insurance, which I believe emotionally to have risen by about 10x, but might actually be more like 4x. Which is thousands of dollars for something I hope never to use. I live in an area that is subject to fire storms, and was evacuated for a week a few years ago, returning to an ash-laden property and grateful for incredible fire fighting. Between my emotions and the actual price increase, it's enough to have me curtail my spending to 'only essential' and low level but constant money worry. I don't think I'm alone; I often commiserate with other shoppers at the grocery store, who, like me are with with somber expressions, softly shaking heads, muttering while picking up a jar of peanuts " I just can't believe this costs that much now."
Low and middle income Americans desire to "get ahead financially." For the low income folks, this means to finally be able to afford basic necessities of life. For the middle income, it means to finally be able to easily afford necessities and to now be able to have more money available for some luxuries. Both groups, after getting a raise, erroneously think of their basic costs as a constant going forward. So, that $100 raise means to them $100 "extra" dollars. This is true initially, but inflation over time erodes this to fewer and fewer dollars. It is this that the people do not anticipate. and it is this that leads to disappointment or despair.
I don’t think it’s just about burritos, it’s about chips. And drinks. And salsa. It’s about choices and patterns. The purveyors of burritos are smart enough that they know I anchor my purchase at their burrito stand on the expense of that burrito. They keep that price steady as a rock…and merchandise the hell out of add-ons. As my wages grow (or not) and I become more settled in my choices of jobs and burritos, I will change my order: I’ll add toppings, chips, more drink and possibly a Gordita. As a comfort driven animal, I deserve that cherry slushie and sniff of that quesadilla pie. My spend grows and whatever else is actually happening in the real economy adds to my sense of economic standing. I may actually partake more frequently. Because…in an increasingly unpredictable world, I have confidence that my expectations will be delivered upon or I just deserve it..regardless of my financial picture. My life warrants a bump now and then. The more settled I become the more I notice the myriad of choices. I make the same money, but I buy more, different stuff. I’d posit that the job jumpers are actually more settle in part due to the more acute sense of economic health related to their job change. Clear as mud.
Always fascinating, and very clearly historically reasonable, but my own fear (and doubtless some of that 71% who think wages will NOT keep up) is the unprecedented graft of this administration, and the impact of the AI-fueled layoffs to the workforce. Looking ahead, I see consolidation of production of food and every other kind of resource, and their determination to increase the prices regardless of their costs. With more monopolies and privatization I don't see a brake on prices, and also rough time for earners ahead. And of course, those on fixed incomes will really suffer, especially with the admin now noticing the deficit, and about to commence shouting about entitlements. I'm sure my view of this is tinged with our own experience, but I have no confidence that anyone in the US government has the citizens' best interests at heart. And that is very scary.
"So, what’s going on?" Here's one idea. Few people read about or understand economics. Very few media outlets, if any, have told the story recited so clearly in this post. Instead, every headline about the economy proclaims either that Americans are experiencing an affordability crisis (especially in housing but also in food and fuel, but happily not in toilet paper) or that inflation is severe.
Most people come to believe what they hear repeated most often. Unfortunately and absurdly, most people get their economics information from mass media or, even more likely, from social meia, not from Platypus Economics. Until PE drowns out ill-informed other media, Americans' beliefs about affordability and inflation will be woefully misguided.
I assume we’re using the burrito price index as a product with relatively price-insensitive demand across similar foods?
I think more interesting would be the extra guac index. Like you, sometimes I splurge but more often I don’t depending on how flush I feel. Neutralize it for avocado price fluctuations I think it would be a cool consumer index.
I think this is all correct, but I would add 2 points that I would like you to address in future columns. (1) I think the affordability crisis isn’t primarily about luxuries like burritos; it’s things that people need to have for a decent middle class lifestyle where prices have really skyrocketed: housing (especially in places with good job markets and schools), healthcare, education and childcare. (2) While wages per your data have generally kept up with inflation, they haven’t gotten ahead. Most importantly they haven’t kept up with increases in productivity, with a larger and larger share of national income going to capital rather than labor. This I think creates negative perceptions among workers, including feelings of being on an endless treadmill and never getting ahead, and also that the economy is rigged in favor of owners over workers (and my understanding is there’s a lot of data to support that belief).
Dr. J: As always, the breezy prose overlays a carefully documented and insightful exposition. Without gainsaying any of that, I'd like to propose that a small comment midway in has important impact: "Since averages can hide a lot,..." It is, after all, macroeconomics, and central tendencies are the order of the day. But I think there would be much to learn from the distribution of many of the factors you examine, that is, broken down by, say, income or gender or ethnicity. With the markedly skewed income distribution that we live with, those central tendencies are likely to be highly skewed as well. I wonder if similar curves by income level might tell us something about the difference between the data and what people perceive.
I've been asking my phone repeatedly in recent days about inflation. It's told me that since 2000 costs have doubled, led by health care, housing and college/university. It's also told me that income has doubled. Then I just sit here wondering why I feel so poor today when I didn't feel so poor in 2000. Now, I'm probably considered at or just above low income -SS and some investment income - neither of which has doubled.
The most noticeable cost increase for me, besides groceries, has been home owner insurance, which I believe emotionally to have risen by about 10x, but might actually be more like 4x. Which is thousands of dollars for something I hope never to use. I live in an area that is subject to fire storms, and was evacuated for a week a few years ago, returning to an ash-laden property and grateful for incredible fire fighting. Between my emotions and the actual price increase, it's enough to have me curtail my spending to 'only essential' and low level but constant money worry. I don't think I'm alone; I often commiserate with other shoppers at the grocery store, who, like me are with with somber expressions, softly shaking heads, muttering while picking up a jar of peanuts " I just can't believe this costs that much now."
Low and middle income Americans desire to "get ahead financially." For the low income folks, this means to finally be able to afford basic necessities of life. For the middle income, it means to finally be able to easily afford necessities and to now be able to have more money available for some luxuries. Both groups, after getting a raise, erroneously think of their basic costs as a constant going forward. So, that $100 raise means to them $100 "extra" dollars. This is true initially, but inflation over time erodes this to fewer and fewer dollars. It is this that the people do not anticipate. and it is this that leads to disappointment or despair.
I don’t think it’s just about burritos, it’s about chips. And drinks. And salsa. It’s about choices and patterns. The purveyors of burritos are smart enough that they know I anchor my purchase at their burrito stand on the expense of that burrito. They keep that price steady as a rock…and merchandise the hell out of add-ons. As my wages grow (or not) and I become more settled in my choices of jobs and burritos, I will change my order: I’ll add toppings, chips, more drink and possibly a Gordita. As a comfort driven animal, I deserve that cherry slushie and sniff of that quesadilla pie. My spend grows and whatever else is actually happening in the real economy adds to my sense of economic standing. I may actually partake more frequently. Because…in an increasingly unpredictable world, I have confidence that my expectations will be delivered upon or I just deserve it..regardless of my financial picture. My life warrants a bump now and then. The more settled I become the more I notice the myriad of choices. I make the same money, but I buy more, different stuff. I’d posit that the job jumpers are actually more settle in part due to the more acute sense of economic health related to their job change. Clear as mud.
Always fascinating, and very clearly historically reasonable, but my own fear (and doubtless some of that 71% who think wages will NOT keep up) is the unprecedented graft of this administration, and the impact of the AI-fueled layoffs to the workforce. Looking ahead, I see consolidation of production of food and every other kind of resource, and their determination to increase the prices regardless of their costs. With more monopolies and privatization I don't see a brake on prices, and also rough time for earners ahead. And of course, those on fixed incomes will really suffer, especially with the admin now noticing the deficit, and about to commence shouting about entitlements. I'm sure my view of this is tinged with our own experience, but I have no confidence that anyone in the US government has the citizens' best interests at heart. And that is very scary.
"So, what’s going on?" Here's one idea. Few people read about or understand economics. Very few media outlets, if any, have told the story recited so clearly in this post. Instead, every headline about the economy proclaims either that Americans are experiencing an affordability crisis (especially in housing but also in food and fuel, but happily not in toilet paper) or that inflation is severe.
Most people come to believe what they hear repeated most often. Unfortunately and absurdly, most people get their economics information from mass media or, even more likely, from social meia, not from Platypus Economics. Until PE drowns out ill-informed other media, Americans' beliefs about affordability and inflation will be woefully misguided.
I assume we’re using the burrito price index as a product with relatively price-insensitive demand across similar foods?
I think more interesting would be the extra guac index. Like you, sometimes I splurge but more often I don’t depending on how flush I feel. Neutralize it for avocado price fluctuations I think it would be a cool consumer index.