TLDR: 1. If you are not seeing the inflation then you are not paying attention. 2. The deficit spending and resulting inflation are a tax on the wealthy. 3. The wealthiest are dodging this quite cleverly by going ahead and racking up huge, YUGE, debt balances. 4. That cash is then being plowed into any sort of item that is scarce, such as land, housing, etc. 5. That debt will then be serviced (and interest deducted!) from future incomes, which is really just "realized past incomes." 6. So the real question is, how long, and to what extent, is it possible to continue this? If the wealthy can manage to service this debt in real terms, while still satisfying shareholders and generating a surplus, then we've done it, as a society, we've won. We can just print money, implement a UBI, and everything will be OK. The "real producers" have reached a point, with technology and infrastructure, to where they really can support us all, if somewhat modestly, and it'll only get better from here, as they get better at producing.
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1. If you are not seeing the inflation then you are not paying attention.
There are very real, very hard implications to the federal budget based on the reported inflation rate, so there are very real efforts to keep the official reported CPI low, and all kinds of wild rationale's for justifying that the low reported CPI is rational and real and matters at all.
One way for a lot of readers on this forum to see it is to graph their
number of shares owned over time in their favorite broad stock market index fund and compare that to what their broker probably graphs over time, which is the
dollar value of their shares. Any of you investing a fixed dollar amount every paycheck will see a diminishing quantity of shares purchased over the long term. That rate of decline, in an economy which inarguably did not grow over the past few years, is inflation. The same dollar buys you less, quantifiably, visibly, less, than yesterday.
A less cerebral way to look at it, is to pick a consumer good where the material cost, not the labor, not the marketing, not the transportation, but the physical material that goes into the thing, and look how that's changed. I like to take the F-150 as an example.
The F-150 has not increased in price by less than 3% Y.o.Y. In 2001 you could buy a basic, stripped out, functional, no power nothing F-150 for $10,000. A 3% inflation per year would put that right around $18,061 today. Ford will sell you one for $29,000, which is an annual inflation of 5.5% (The reported 12 month CPI as of August 11 is 5.4% "before seasonal adjustment"
https://www.bls.gov/news.release/cpi.nr0.htm).
Now there's all sorts of arguments the defenders of the low inflation theory throw out, that a new F150 is
Better than an old one, there's fuel efficiency and longevity and etc. etc. But insofar as the purchasing power of the dollar, that's sort of irrelevant, because if you need to buy one (and I know, big stupid truck but bear with me, I'd use other vehicles but the F150 has a LOT of data available to parse if you want to get into it, it's a good example) then you have to pony up. You can't really go buy a lower priced house, or lot, or car, or whatever. Wherever you're at, there's sort of a "this is what that costs here right now" sorta thing going on, and you are, for better or worse, picking from the available alternatives. The cheaper option to the F150 back in 2001 exists today, and it has *also* gone up about 5.5% per year. You can be super badass mustachian all you want, but when the floods ruin 1/3 of the used cars and the fires ruin another 1/3, all of us fighting to get that little 2-door hatchback with 70k on the odo are going to drive up the price.
And anyone that's owned one of these pieces of shit will tell you that no, it doesn't last longer, and no, it isn't better. It's a truck, it'll get you from point A to point B, and the engine will eventually blow up because it's a god-damned-ford.
In the stock example, we have many things going on, there's no place else to put your money, there's...ironically...worries about inflation that drive up asset prices as folks dump cash, and there's very real bubbles developing in certain sectors. For the market timers this is the source of much anxiety. But underneath it all, is some very real inflation. Money is being printed and not nearly as much work is getting done.
The CPI bothers me so much, because people look at that and say inflation has been low and completely ignore that yes, prices have not gone up that much on certain things, while literally the entire economy has been wired towards lowering that price. The consumer got incredibly cost sensitive, and everything has massively contorted to keep that price of [insert good] the same. Entire sectors have bent/twisted/broken keeping that price where it is, and now that nobody is at work we're finally seeing the prices start to move, because further cost reductions haven't been implemented.
Some examples: Since 1970 we've seen a dramatic draw down in stock-on-hand as everything has moved to virtually on-demand manufacturing. Items roll off the factory floor and get delivered right to the customer that ordered them. Stock used to go into the warehouse until used for manufacturing, end products would go into a warehouse awaiting shipping to another warehouse for distribution to local stores and then to the customer's home. Now stock gets taken off the truck, turned into the thing, and put on another truck, to the amazon distribution center, where it goes into a box with a hundred other things and off to the customer.
Combined with improvements in logistics and manufacturing, the relentless push to make more for less has isolated the consumer from inflation across the full spectrum of items that make up the CPI. Meanwhile, capital goods where such innovation just faces extreme pressures of "there's only so many mines" and "only so much land" have seen prices go absolutely nuts. If the housing market hadn't collapsed, totally, globally, in 2008/2009, no single family home in america would be less than a million dollars, all while wages haven't increased at all. The CPI is a HUGE factor in the lack of wage growth. The simple reality that a 2-person household working 60 hours a week absolutely can survive on minimum wage, even thrive (that's $36k/yr assuming no overtime; painful but lets just say mathematically possible), prevents any serious action to raise it. If the CPI were RATIONALLY calculated, we'd be able to have a much more honest national conversation about quality of life and income/asset requirements to be not dirt-floor-poor.
But the CPI will never be rationally calculated. WE cannot afford to keep our promises through various entitlement programs that have benefits that increase over time in relation to the official reported CPI.
https://www.bls.gov/regions/mid-atlantic/data/consumerpriceindexhistorical_us_table.htmIf you scroll down to the percentages table (second table) you can see how low it usually is. It is shocking, genuinely shocking, to see it reported as high as it is right now, I can only imagine what must be really happening with inflation to cause the official number to get up so high. I'm suspicious it's a huge number of landlords torqueing rent on anyone that can still pay to try and cover all the rent that's not getting paid. Bunch of part-time side-hustlers are hopefully taking advantage of the opportunity to sell their properties while the market is cash rich/inventory poor. I'm barely paying attention to all of that though, this is very much a TV-off, head-down, make as much as I can work as much as I can time of life.
2. The deficit spending and resulting inflation are a tax on the wealthy.
I would like to see a UBI. And I've come to realize that the absolute best way to pay for it is just to print the money. As long as the producers don't just all fucking quit producing, I think it would actually work just fine. And we're sort of very fucking close to that situation right now. I'm working because I like my job and it pays me a butt-ton. I'm investing my money anywhere I can think of because I am super aware of the inflationary pressure of all this not-work going on. If it turns out producers are more like me than meth-head-molly, I think we'll be OK. I genuinely always considered myself to be super lazy, but all it took was a job that paid alot and I don't mind working all the time and being super productive.
So that pressure on the value of the dollar forces everyone to invest their money, because having cash is a huge liability in that situation, but without a corresponding hike in prices the only people paying for it are the people with extra assets/etc. So you basically end up just funding the whole thing with this explosion of productivity from your best performers, particularly if you can keep interest rates low so they have essentially unlimited funds available to borrow and pay for their next insane innovation like...I dunno, Amazon Space Delivery or w/e, ICBM's with TP and dildoes...
3. The wealthiest are dodging this quite cleverly by going ahead and racking up huge, YUGE, debt balances.
If interest rates are low and future inflation is probable, especially if you have a reasonable expectation of future incomes to service the debt, why not just borrow an insane amount of money? As I understand it, this is how some of these uber wealthy folks are avoiding any real tax liability, because they've somehow manage to express their extraction of assets from the underlying portfolio as debt, rather than income. "I won't sell these shares, rather I'll use them as collateral, so then all this money I get from that is just a loan, not income." It's clever. And it's repeatable, use that money to buy another big chunk of shares, and use them as collateral. It's an infinite money situation, as long as the cashflow is never interrupted. So there's this mexican standoff happening, "you keep inflation high and interest rates low for too long, and we will completely fuck your economy if you ever make us actually pay a tax bill." That old quote "if you owe the bank a hundred thousand dollars, that's your problem, if you owe the bank a hundred billion dollars, that's the bank's problem" comes to mind.
4. That cash is then being plowed into any sort of item that is scarce, such as land, housing, etc.
When possible, relatively "protected" assets, more insulated from inflation, will get snatched up. This does create a bubble if there's too much cash floating around, sort of, enough inflation will overwhelm the bubble so it never pops, and we're seeing that in housing prices. Things are going to get really bad, really fast, if this keeps up, but I can make a strong argument that it might be good, if it gets the majority of the U.S. to stop trying to put everyone in a McMansion and build some reasonable housing. Investors, realizing they'll never fill a 3 bedroom house with a $5k/month tenant, will finally exert pressure on city planners and start building some 12-unit apartment buildings so folks can get reasonable housing security again.
This is REALLY good by the way. AS LONG AS they (the wealthy borrowing the money at the low interest rates) don't screw us over by moving their businesses into a different currency and refusing to accept dollars after dumping all of theirs, we'll be fine. This is sort of what Paul Krugman is pointing out. People being butthurt by Bill Gates buying up farmland don't get it. As long as he's buying AMERICAN farmland it's fine. As long as Wall Street is buying AMERICAN houses, it's fine. It's when they start exclusively buying stuff in other countries that we need to really start sweating.
5. That debt will then be serviced (and interest deducted!) from future incomes, which is really just "realized past incomes."
I think this is why the economy will generally see a decent bounce when they finally do raise interest rates, because at that point the music stops, everyone has a seat, and we get on down the road.
6. So the real question is, how long, and to what extent, is it possible to continue this? If the wealthy can manage to service this debt in real terms, while still satisfying shareholders and generating a surplus, then we've done it, as a society, we've won. We can just print money, implement a UBI, and everything will be OK. The "real producers" have reached a point, with technology and infrastructure, to where they really can support us all, if somewhat modestly, and it'll only get better from here, as they get better at producing.
I'm a little bit thinking that we aren't quite there yet. It would have been pretty f'ing cool if coronavirus had happened like....ten years from now, or twenty, I think that we would have been much closer to ready, but we'll see.