The increase is measured in "real terms" which means things like CPI are taken in to account. Further this number does decrease, for example during the last recession, so household median income is not directly correlated with inflation -- especially in this era of low inflation (compared to the mid-to-late 20th century inflation) that we've been in for a while.
" which means things like CPI are taken in to account."
Yes - but we should all be weary of this.
CPI is measured in funky ways, and it's tough one.
Problems with measures:
+ Both housing and Oil prices are usually left out of the numbers they use (included in others).
There are reasons for doing this, but it's bazonkers crazy to think of 'consumer prices' as not including their #1 item (housing) and a huge variable cost that consumers pay for directly (gas) but also that goes into everything (airline tickets, transport of stuff, taxi, etc. etc..)
And of course the hardest thing to measure is the real value increase of a product ... i.e. a tomato that is bigger, redder, juicier, healthier - is worth more than one that is not. So - if prices for tomatoes stay flat - but - their value has actually increased, well, that's deflation. That intangible is super hard to measure and quantify.
It's the later issue that is at the heart of so many economic arguments: some say we are 'poorer than ever' - and yet, every single bit of material consumable is way better than it ever was. The crappiest Peugot today drives better than the #1 Mercedes from 1985 ...
This is funky for another reason: people don't live in similar housing to what people lived in in the past. If you look at census data (American Housing Survey) from 40-50 years ago, you find the average American home was under 1500 square feet, 2-3 bedrooms, 1-2 bathrooms, no AC, no laundry machines, and so on. In fact, the average American home in the 1970s was smaller and had less amenities than the average current American home for people below the poverty line.
Any measure that just looks at the change in housing costs and doesn't adjust for the benefits of on-average larger homes with more amenities will end up overestimating that piece of monetary inflation (accidentally counting lifestyle inflation.) As you say, it's really hard to measure the "real value increase of a product", and that makes a lot of inflation measures... sketchy.
yeah, building and zoning are certainly relevant considerations. I'm not saying "this is all the fault of consumers". More like "when we measure inflation, we conflate monetary and lifestyle inflation, and our preferred policy ideas might not reflect that."
Are larger houses materially improving anyone’s lives? Over a certain amount of space, increases experience diminishing returns.
Meanwhile, the important things, such as percentage of income directed toward expenses and debt payment, and amount of leisure, may not have improved.
More households are composed of both prime-age adults working than 30 years ago. Are expenses simply rising to match this rate of increased employment?
Either way, it’s sketchy until those factors are quantified.
> "Over a certain amount of space, increases experience diminishing returns"
Indeed. And yet, that's what we buy. Or, that's what's being built and therefore that's what we can buy. I don't know whether buyers or builders/zoning are to blame, I just know that when we try to measure inflation, it's really hard to divide monetary inflation from lifestyle inflation -- how much is "money is worth less", and how much of it is "you're buying something better"?
Lol the house you described would go over a million in the Bay Area and it was built before the 70s too. No heating or ac gets installed too. So I wonder how that gets accounted for in inflation?
out of 118.29 million housing units, 80.8m (68%) have dishwashers, 97.6m (82%) have washing machines, and 95.7m (81%) have dryers. For the grandparent: 105m (89%) have AC, and 112m (94%) have a furnace or heat pump or water/steam heat or built-in electric heat of some sort. All of those numbers would qualify as "most".
Looking at the oldest stats I can find for each of those categories:
1970 -- out of ~75.3 million housing units, 35.3m (47%) have AC, and 62.6m (83%) have a furnace or heat pump or water/steam heat or built-in electric heat of some sort.
1985 -- out of 99.9 million units, 42m (42% heh) had dishwashers, 67m (67%) had washing machines, and 58m (58%) had clothes dryers.
So 26% more homes have dishwashers, 15% more have washing machines, 23% more have dryers, 42% more have AC, and 11% more have better heating systems compared to the earliest data I was able to find. Point being, there's been a significant increase in the availability of many important in-house amenities over the last 50 years. Not that everyone has every amenity, but a lot more people have them, and that definitely affects the way we should interpret stats relating to housing costs.
I'm also a layperson, so if a real economist posts something contradictory you'll probably want to listen to them. Of course economists are always contradicting each other so YMMV.
Does CPI decrease artificially based on subsidies to the indexed goods? For example with milk or any food with corn syrup, where the actual cost of production isn't reflected in the market price.
> How is "all time high" income surprising, given that inflation essentially guarantees perpetually increasing dollar amounts of everything?
Even when measuring real dollars, it's not a surprise. The great majority of the time, the aggregate national income, measured by GDP, grows in the U.S. and in any other advanced economy.
The first year of someone's term is very rarely affected by their policies. My particular pet hate is when politicians start bragging about how their policies are responsible for good economic news when they're still in the first three months.
Truth is that economies change slowly, and politicians have much less control over it than we all like to believe.
> Truth is that economies change slowly, and politicians have much less control over it than we all like to believe.
I dont know why you are being downvoted, this is a very sensible comment. Changes in society are slow and progressive, except in very specific circumstances.
I think in general you're right, but with a some exceptions. Like say it depends on what part of economy we are talking about. If inflation, GDP numbers and so on, then those move slower. But stock market can react pretty quickly it seems. For example it can react to getting a hint of a possibly changing regulatory environments. A crashing or rapidly rising stock market will affect the economy quite a bit, especially if it is sustained long enough.
War can change things, disasters, foreign economic threats (say a trade war with a major superpower). Those can have rapid effects as well.
Well, disasters and foreign economic threats aren't due to a politician's policy, and the regulatory environment usually doesn't change straight away (that requires legislation, not just a policy manifesto). War is a rare event as well, and it doesn't necessarily affect the wider economy - the war in Iraq and Afghanistan hasn't affected the US economy much, which quite happily went through a boom time in the early years of the war, then crashed for reasons unrelated to the war. Of course, the economy of Iraq got soundly fucked by war, but that wasn't due to the economic policies of the politician in charge.
The war had enormous implications for the economy. Commodity prices were driven extremely high due to investor uncertainty about the Middle East oil supply. It got so bad that Congress had to pressure traders to stop hoarding massive amounts of crude oil in the hopes that the supply would be disrupted and the price would escalate. These commodity price rises fueled speculation into other asset classes, such as housing and loans.
As always there were some short-term positive Keynesian stimulative effects by increased government spending, but a massive run-up of the deficit did increase the cost of servicing the national debt, which might otherwise have been directed into productive enterprises, rather than the wasteful Iraq war which achieved negative progress.
The stock market is a prediction of future returns, so it is in fact a signal of what people think about the what the new politician's effect on certain companies' income.
I'm curious: is anyone at a point where they're pulling out of equities at all? I feel like things are getting a bit too good to be true in the markets.
The Shiller P/E ratio is at a 2nd-time high - the only other higher time being the dot-com boom and bust: multpl.com/shiller-pe/
I became a 'bear' after Trump election (I think unrealistic expectations) but I have been very wrong so far - and I don't work professional in finance so only a sample of one example. I sold off most of my play money and pulled down risk of long term holdings.
Lots of opportunity lost. I just can't get over the feeling of repetitious omens. My family (commercial real estate clan) says when new large office building construction goes up it tends to signal end of bull run. Where I live we are voting on a large bond on the back of HUGE growth in home values, last time we did this was 2007...
My issue with this line of thought, is that while completely true, it also doesn't mean a whole lot. It is completely dependent on it being the US stock market. And during a period for that stock market that had a number of incredibly important items go it's way. Its not backfitting because it happened, but we only find it meaningful because we happened to have been here during it. For any number of reasons, including just how the universe works, that doesn't mean anything going forward.
> "It is completely dependent on it being the US stock market."
Not really. It's only dependent on stock prices inherently reflecting all of the information buyers and sellers have about their expectations, including expected risk and reward. Trying to "time" the market basically means trying to find a signal other buyers and sellers haven't figured out, or at least not enough of them to cause prices to shift accordingly.
Which isn't to say it's impossible. You can be among the first to notice something is awry. It just probably won't be "the P/E is off"; lots of people look at that. It'll be something like in the last housing bubble -- "huh, I noticed housing prices are way out of reach for median income earners, so I looked into loan practices, and apparently risky loans are being repackaged and sold off in a way that masks the risk" and then watching things like loan default rates like a hawk, and then selling as soon as loan defaults started affecting the market.
My point was that entire countries economies and political systems sometimes fail. That hasn't happened in the US in the same way as it's happened elsewhere. But if it had, then "timing" the market, by which I mean selling it, would not have been suboptimal.
Maybe I define market timing differently. Holding a healthy cash position for future investment and selling investments from time to time based on either their valuation or prospects, whatever that is called, is not a bad idea.
I contrast that with being 100% invested in index funds at all times, forever. That might backtest well, but that doesn't mean it will forward test at all well.
Do you think market will return to this level with your current basket of equities? There is an argument that the market has too much liquidity due to QE and low rates within the fractional reserve system. If the market crashes, will the monetary policy be there to get the market to these highs within 5-10 years?
Also, if you think the market is going down, one doesn’t need perfect timing. You can get out and have cash on hand to buy later. If everything goes down 25% and you sold out 5% below the max value, you now have more money than your peers, which started in the market, to get gains in the future.
This is true, but nailing that timing is really hard. I can't remember the exact numbers but if you missed the 10 best days for the market in the last 40 years, you missed out on 70% of the gains.
3 months ago I made a shift of 1/3 of my retirement funds to cash. I took 90% of my taxable accounts to cash. It's a risk, of course, everything is, but the valuations of stocks and housing are as you note high. I normally hate holding cash, but I don't see anything I want to invest in. I'm sure that will change eventually.
I've been very nervous for the last several years and missed out on some big gains. Oh well. If I'd bought {whatever} back in the day, I'd be retired now. I suggest keeping some cash aside for a year or two of expenses. Otherwise, keep yourself exposed to the market.
Why would you. Everyone is so in the money already, who cares if you get a 10% down day when you're up 100% yoy? Put another way, everyone is playing with the houses money so why not risk it?
I'm not, but then again, the vast majority of my wealth at retirement is in paychecks I haven't earned yet. Even at 100% equity, I'd be happy to see a market correction. Like, people who started investing in stocks in 2009 are doing really well.
This is the key! Even when the economy was going into the crapper in 2008, I left my money in (just rebalancing annually). I lost 30% of my money at the bottom.
However, in the last decade or so, I made it all back plus another 60%. If I had pulled out I'm pretty sure I would have missed a lot of those gains.
Your bank account says “find a better job”. In today’s job market there’s really no excuse for anyone who can understand at least half the news posted on this site to make less than six figures.
The idea that you should have an interest in what you do for money is a new one and I think fairly unhealthy. It's part of the reason why we have so many young people with degrees in underwater basketweaving who can't find work in their majors.
We're in the midst of an insane sociological revolution regarding "ability." 100 years ago it didn't matter if you had a 140 IQ because you were just out plowing the field the same as your neighbor. For the first time in the history of mankind general cognitive ability is the biggest factor in your ability to acquire resources. Unfortunately that's largely biological in nature. You can reduce IQ pretty easily with poor nutrition, abuse, etc. But it's really hard to raise IQ meaningfully. Life is already difficult for well meaning, hard working people with low cognitive ability, and I think it's only going to get worse. In the meantime, high cognitive ability people will be doing well, whether they're coding or doing other brainy work.
I think the unhealthy idea is that you should work in a field that you have no interest in, just because it pays more than underwater basketweaving, even if that'd still be enough to make a living and you'd enjoy it much more.
After a certain fairly low threshold, having more money doesn't automatically make you more happy (i.e. you're already fed and clothed and have a place to sleep). Once you have crossed that threshold, you'll have to weigh work satisfaction against pay, and it may turn out in favor of the low-paying job you enjoy more.
There's a false dichotomy between you and the grandparent post. Most people have multiple fields they could potentially be interested in, with a wide range of incomes. And conversely, there are multiple fields that generate high incomes, with a wide range of appeal to you.
In my view, you should take income as a signal, one piece of information. It's the market telling you which fields are valued by others and yet have too few practitioners. It's not the only signal - you should also listen to your feelings about whether you enjoy the work, whether you feel like you're growing, whether you can live in a geographic location you like, whether you can work hours that suit you, whether the results of your work accord with your values, and so on. But you make tradeoffs between these factors: you don't get to have everything. If you decide to follow your passion with a non-lucrative field, that's fine, but realize that the consequence of your decision is that you will make less than someone whose work is valued more highly by the market. And it's up to you to decide whether the things you could buy with that money are worth more than the experience of doing the job.
I think you have a very privileged view of what work is like. Most people will not have a career, they'll have a series of jobs. Most people do not have a broad range of opportunities to choose from which will offer them economic security. Enjoyment of the work is a factor, but it's so far behind economic security that I'm not sure it should be mentioned in conversations with young people when giving them advice about their economic future. Doing so tends to lead to a false equivalence. Economic stability is first and foremost.
I place the burden of bare economic security on society rather than the individual. It's really reactionary to say that someone that aspires to a healthy lifestyle is asking for too much. In this incredibly wealthy country, we can afford that. Many would argue, myself included, that the failure of aspirational thinking is producing the current crisis.
>I place the burden of bare economic security on society rather than the individual.
Perhaps I'm not parsing this properly, but it sounds like you're suggesting we should advise children on how to navigate the fantasy society you want to live in rather than giving them sober advice based on objective reality.
I don't think it's either or. We should give sober advice while acknowledging that a better future is possible. One without the other alternatively doesn't keep the door to that better future open or isn't practical.
No. If you can’t find a job as an engineer in this white hot market, it’s time to think of a career change. That’s the cold, hard truth. Things are crazier than I’ve seen them in 20 years. Empathy does not motivate. Get off your ass and strike this iron while it’s hot.
What happens when the US needs to start paying off the trillions in debt? I remember the last time things were good. It stopped being good quite rapidly. I don't know much about monetary and economic policy but I'm optimistically cautious. I can't imagine the US borrowing several trillion dollars to keep credit from freezing again.
A CEO once told me, "If you owe someone $1 million, then they own you. If you owe someone $1 billion, then you own them." I think that the orgs who are owed by US are primarily concerned with maintaining the status quo, rather than gutting the golden goose.
Edit: Since this was down voted, I want to be clear: this is not snark. This was meant as a very real commentary on how important it is that we have the ability to inflate our way out of debt. It's critical to understanding the power dynamics at play here.
Tldr: Government debt isn't like household debt. If anything you should be worried about growing deficits outside recessions, and even that just leads to some inflation.
There is no need to pay off the debt, as long as it grows slower than the economy it is shrinking in real terms.
Furthermore it serves an important purpose as a "risk-free" investment of US dollars and as a tool for monetary policy through open market operations. In fact there isn't enough outstanding debt for the second role, which is why during the financial crisis the Fed expanded its balance sheet to include mortgage backed securities.
Finally any country with its own currency can't really default on payments, except in a technical sense like the "debt ceiling". Instead if the government continues to run expanding deficits then inflation will rise and smooth things out, statistically reducing the debt. Think of it as everyone who owns dollars pays off a bit of their share of the debt.
Severe inflation like in the 1970's or worse is clearly harmful, but deflation is more harmful than moderate inflation. We have been running below policy maker goals of about 2% inflation for a while, despite the cries from deficit hawks that massive inflation is right around the corner due to QE.
I don’t see why you’re getting downvoted. This is a good question I don’t know the answer to. Id also like to know what the consequences are of the gov buying back bonds with quantitative easing... which at the very least to me seems to pump value into these bonds that aren’t a really there - esp if the buyback is because the government is not equipped to pay them back.
With debt it depends who the debt is owed to.
US owes a lot to other govts.
Greece owed it to bond buying private firms.
China's debt is owed by the people and local corporations to the local bank.
And debt is typically a problem when recession strikes.
Yes, as opposed to intra-governmental debt. Also of the public debt, the breakdown is:
As of September 2014, foreigners owned $6.06 trillion of U.S. debt, or approximately 47% of the debt held by the public of $12.8 trillion and 34% of the total debt of $17.8 trillion.[42] The largest holders were China, Japan, Belgium, the Caribbean banking centers, and oil exporters.
Side note: The 5.8% decline in poverty is not explicitly stated. Per the report, the number of persons in poverty dropped by 2.5 million to 40.6 million. I added the 2.5 million back to 40.6 million to get the 2015 number, then divided it back into 2.5 million to get the 5.8% YoY decline from 2015 - 2016:
As I understand it, the measurement for poverty is unreasonably low. That the better rule of thumb is the number of citizens below 2x the traditional poverty income levels. This data is over-aggregated.
