Its not inflation if its food & energy

A subaru wrx can do all what my car do for $25k, with all season tires can kick your old school car on any road, and if it's snowing can do it all day long whilst you spin your rear wheel meat head tires trying to get out of your parking spot. I pay extra for the 'label'. I freely admit it. Or you can go Nissan gtr for $75k. Up to you.

In many ways today's cars ARE better than what we had years ago. My point is the hedonics is oversold. And sometimes as in the case of Toyota and decontenting, the newer version is worse(albeit it ways the auto- consumer may not readily appreciate)

I can't drop my phone! I checked off the levitating option box.

Oh lord. I was involved in a fender bender in college where my newish mazda van got t boned by a old school ford econoline. Damage to econoline, just minor cosmetics. My van, got crushed. Even I was like look at his pos Mazda van. I bring car into shop at LIC (next to ph flmazo), told the same story to the old school mechanic. The mechanic said would you rather the car get crushed or your body? The mechanic always bought the newer model even if it cost more and was more complicated. Newer cars take the impact energy, older cars just transfers that exact impact energy into it's occupants.

Crumple zones have been built into cars for years(decades). This is either a very old story or the mechanic was spinning you a tale.

There have also been studies that anti-lock breaks and air bags haven't reduced auto-fatalities because such systems merely promote more aggressive and reckless driving behavior. Something to think about....

NEW YORK – A Purdue University research team that studied five years of motor vehicle accidents in Washington State concludes antilock brakes and airbags don't minimize accidents or injuries because those systems may encourage more aggressive driving.

Fred Mannering, a Purdue professor of civil engineering, led the study. The results, which are bound to be controversial with auto makers and safety experts, say the innovations designed to improve safety also make drivers less vigilant.

http://wardsauto.com/ar/researchers_question_abs/

Instead of comparing cars, how about comparing standard of living and retirement age for retirees' of 1990, 2000, and 2010... Also, compare initial conditions vs. 10yrs after retirement for each group.

If you prefer a 1990 Supra, go for it, that's your prerogative. I drove a 1989 or 1990 Supra Turbo back then: great car, no question. But fast-forward the $28K by CPI (which you say underestimates) to $48K, we're now talking a base Corvette. Lower weight, nearly double the horsepower. I tried to look up the Nürburgring lap times, but no one bothered to measure the Supra. The 0-60 times are 4.3 vs 6.6 seconds.

"As far as shadow stats, he's the highest profile person providing Pre-Boskin statisics. MY view is hes adding something very valuable to the debate. When the gov't first changed over it was very controversial, but over time people forgot and many probably don't understand the discussion."

I'm trying to understand the discussion.  I get that the government has incentive to fudge CPI, so I look at it with skepticism too.  I have read what you (and others) have been saying with an open mind.  Then, I decided to see what passes the sniff test, so I did my comparison above (prompted by this thread).  I've never read an economics textbook.

The government's methodology puts per-capita productivity in 1990 at 20% lower than 2010.  Given all the advances I've witnessed in the past 20 years, it sounds about right.  If you had put me in a box and asked me to guess the number, I'd have probably come out in that ballpark.

The Shadow Stats guy's numbers put it at 50% higher in 1990 than in 2010.  That is so far out of left field that it makes me think the guy is simply too stupid to understand the trivial implications of claims he's making, or that he's a smart guy pandering to such stupidity just to make a dollar.  I'll go with the former: "Never attribute to malice that which is adequately explained by stupidity".

Can you explain why you'd give this guy's methodology and data any weight whatsoever after this discussion?  I know it matches your narrative, but doesn't the government's claim of productivity being 20% lower in 1990 vs now make more sense than Shadow Stats's claim of productivity being 50% higher in 1990 than now?

That's why they have menus. Enjoy your Vette.

I'll bottom line it. Without getting into the GDP 3 vs 4% discussion or CPI 2 vs 9% discussion ,I'll echo what another opinion poster commented on, that their expenses seem to go up more than the government's numbers seem to indicate. I haven't given the GDP deflator much thought since college days, so I would no be prepared to do so now, but I will say this, being from Missouri I'm just a little skeptical of the published CPI which is too far away from anything I seem to experience. It feels off by several hundred basis points.

but, of course, once again, all you're doing is avoiding the question. the bottom line (as you put it) is whether you believe that productivity was 50% higher in 1990 than now. that is the bottom line. yes or no?

Cannot answer that without knowing the foreign content involved before final production in the cost of goods sold. GDP excludes the value of content produced non-domestically which is not a trivial issue....

Case in point, the i-pod is produced in China by Fox-con, go calculate its affect on GDP....

more nonsense. try again. productivity. down 50% since 1990? yes or no?

"Instead of comparing cars, how about comparing standard of living and retirement age for retirees' of 1990, 2000, and 2010... Also, compare initial conditions vs. 10yrs after retirement for each group."

Sunday, I think people wanting to live the 1990 lifestyle today can find they would be able to do so in 2010 with CPI.  The trouble is that they want to live the 2010 lifestyle: people don't look at absolute wealth, they look at relative wealth.  The average person in the US lives a better life than Henry VIII in many ways, yet most do not feel that they do.

Fun little question; answer it for yourself before reading the next paragraph.  Out of all modern things in life we take for granted, if you could only keep one for happiness for your quality of life, what would it be?

For me, a close 2nd would be air conditioning.  But indoor plumbing would win.  TV / computer / phone / iPhone / car / airplane would not even be on the list (unless the airplane had a/c and plumbing, of course).

The a/c thing is interesting. Even a king in the middle ages would not have access to it. It sounded like Sunday was trying to change the topic based on relevancy to real estate..but there is relevancy with regard to CPI. A prevailing theme has been that one is best off in CASH, which earns 0%, I would argue that cash will be a terrible investment over the next ten years or even five as it has an almost certain probability of loosing purchasing power. Cars go up 3% a year, Rent is certainly going to increase now that the buy/rent psychology has shifted more in favor of renting.

If you believe matching the CPI with regards to an interest on savings you are screwed twice, first with regards to taxes which reduce return but second in terms of a flawed bench mark.

yes or no rent stabilizer? productivity, up or down?

RS, we're talking Shadow Stat's numbers regarding GDP here, not the government's. They say 1990 productivity per-capita was 50% higher than 2010. (Or the other way around: 2010 productivity per-capita is 66% of 1990.)

Does that pass your sniff test? Does that make you suspicious of their methodology? Or does that match your Missouri show-me experience?

My intuition tells me that finished good in the united states contain more foreign produced parts than ever. I guess you'll have to "show me".

Ino-,
My point is and i'm losing interest in the discussion, is that the CPI understates inflation, You asked me what i thought our inflation adjusted gdp was and I responded i had no idea, but that shadow stats has thought about this more than I. Now you want me to come up with a number, I cannot other than to say, I would not be shocked to learn that domestic content represents less of finished goods than it did twenty years ago, which opens up the discussion.
Perhaps you should enlighten me on how you come up with your contrary opinion. If you can't I've lost interest.

so in 1990, japanese and german cars had more parts made in the us than now?

Retirees will be older and less prepared financially for retirement in the future. People are saving less for retirement because most of their pay checks are used to keep up with the Jones, what some consider modern necessities. Retirees' standard of living will decrease after retirement as a result of underfunded retirement accounts. They will live longer, but many will live in poverty. True inflation will make this country poor, one retiree at a time...

inonada, I don't know what I would do without access to a warm shower everyday.

Sunday, remember that in your waning years: at least I have a/c, I can get a warm shower, and I can crap indoors without worrying about a spider biting my wrinkled ass. All things Henry VIII would have given up his kingdom for.

inonada, true, but that's why I listed years in the last couple of decades instead of comparing with the 1500's. I just think that the whole CPI discussion really impacts retirees the most. Current workers can at least *partially* compensate with higher salary and *save less* in order keep their standard of living. Of course these future retirees will pay the price eventually...

Inflation hurts the middle class and retirees in many ways. Unfortunately it doesn't generate the same head-lines as the tax rate, but reduced purchasing power is a tax. Ben Bernanke thinks inflation is a policy tool.

Ben Bernanke can’t you understand
Wall Street needs a helping hand
Or there’s gonna be a nasty recession some day
Fed gov’nors don’t you see?
We’ll lose three points of GDP!
The working man gets hurt the worst
If you don’t save…the rich ones first
http://www.youtube.com/watch?v=B8PwqQ5guYk

Sunday, I think current retirees have it better than, say, the retirees of the 1970's and 1980's. Beyond improve quality-of-life, the inflation outlook at the moment is quite tame. Planning for retirement when inflation is raging at 8% with high volatility seems much harder then what the retirees of today have to contend with. It seems that the biggest problem is that perhaps people today live beyond their means to a greater extend than before, but I'm not sure. I know plenty of people from older generations that were the same...

If you are retiree today facing a 1% interest rate environment the present value of your post-retirement expenses is far greater than someone retiring in an 8% interest rate environment. Retirees are hosed.

inonada: "...inflation outlook at the moment is quite tame."

This is where I disagree the most. As I posted earlier in the thread, "I don't care how people define inflation/deflation, all I know is my monthly expenses keep increasing. Not one single category is down year over year in my household." US salary increases will likely not increase at the same rate as inflation especially with salary increases in developing countries.

I could be wrong, but I suspect retirees of the 1970's and 1980's have better funded retirement accounts/pensions relative to new retirees, especially relative to life expectancy. Again, I picked 1990, 2000, 2010 for a reason. For one, the older generation are mostly dead or will be soon. Second, while it's interesting to compare quality of life of the 1500's, 1970's and 2000's, I think it's more relevant (for reasons why it's less interesting) to compare the last couple of decades, and the next couple of decades.

"Three-fourths of Americans live paycheck to paycheck", ...even if older generations were the same, at least they had pensions.
http://kansascity.bizjournals.com/kansascity/stories/2010/09/06/daily2.html?ana=yfcpc

i think you're doing a reasonable job of describing the symptoms but missing the cause.

i don't think its reasonable to measure inflation/deflation based on continuing to do everything you always do in the exact same manner forever. if there are opportunities to spend less by changing elements of your lifestyle (note, I am saying changing not necessarily lowering) and you choose not to do so, is that inflation?

are far as comparisons of retirees. first and foremost, you gloss over the fact of longer life expectancy and somehow make it into a negative. if we have a significantly greater chance of living into our 90's than our parents or grand parents, isn't that a huge plus right off the bat? along with that we have the opportunity to stay connected with the larger world in ways that our parents and grand parents could not of dreamed.

the fact that many of us have lived foolishly from a financial point of view and somehow want to maintain or at some point return to this type of foolishness masks the real opportunities that are available.

riversider wants to eat steak every night and drive a 20 year old car. he sees nothing positive in the last 20 yrs and blames everyone and everything.

In 1972 Social Security benefits were indexed to cost of living adjustments. After Boskin the CPI was reformulated to cut entitlements which has to make today's retirees less well off. This is not just my opinion but the opinion of others.
------------------------------------------------------------------------------------------------------------------------
-“The debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.” -
- Greg Mankiw -
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CC, living longer is a positive, but living longer in poverty is not so positive, at least in my opinion. I think I made comments here which explain the cause as being underfunded retirement accounts because people are spending more and saving less. Most retirees will be forced (not choose) to move to lower cost locations in order to try to maintain their standard of living.

I do agree that there's great opportunities to live a longer and quality life. I definitely plan and saving doing so.

why have we created the myth that one should be able to maintain one's standard of living in retirement? you may or may not be able (and more than likely not these days) to save enough and get lucky enough with the return on those savings but if you accept a different (lower) level of expenditure, you're far more likely to enjoy retirement.

ironically, from the article you posted it appears clear that many of us cannot maintain our current lifestyles even while working!

"I don't care how people define inflation/deflation, all I know is my monthly expenses keep increasing. Not one single category is down year over year in my household."

Sunday, I don't think CPI is off.  The govt statisticians put GDP growth over the past 20 years at 4.5%, of which 2.5% is inflation, 1% is population-driven productivity, and 1% is per-capita productivity.  If you want to say inflation was higher (say, 6% as Shadow Stats attempts to do), then it's gotta come out somewhere.  Either the govt is lying about nominal GDP (putting it lower than the "true" 7%, which is in the wrong direction for conspiracy theorist), population growth (putting it at the "true" -2%, meaning population dropped from 250 million to 160 million), or per-capita productivity (making it -2% annually, meaning 1990 productivity was 50% higher than 2010).  If you try discussing such things with inflationistas, it seems like they cry like ninnies about how they've lost interest in the discussion, and how they know nothing about the data, but dammit it's true.

Nevertheless, most people seem to think CPI outpaces inflation for them somehow.  Then again, most people think they're better than average drivers, and have higher than average intelligence, so the interesting question to ask is what is driving this misperception.

I think CC makes some good points on this.  For a constant number of years working, say your baseline is to spend $55K for 70 years of life.  Compared to that, people probably perceive a 77 year lifespan at $50K as a reduction, when it really isn't.

But I think it goes beyond this.  Social norms this past decade or two have become a lot more materialistic, so I think there's been a fair amount of quality-creep.  The idea with CPI is that you don't get improvements with it, but people expect improvements.  Linoleum countertops vs granite, 20" CRT vs 50" plasma, fax vs iPhone, 120 HP vs 270 HP, 18 MPG vs 26 MPG, canned food vs organic, etc. should all come with no price increase for it to not be inflationary, most people subconsciously believe.

The real killer IMO, though, is that the productivity gains of the past decade have disproportionately fallen into the hands of relatively few people.  The reality is that the average American has made no real income gains in 10 years, but that's not how the average American feels spending-wise.  For every 50" plasma screen purchased, some other part of spending needed to give way.  For every additional year of life, an additional year of work was necessary.  For every Whole Foods shopping day, something had to be forgone.  But it wasn't, and the typical path of income gains didn't make up the difference, so many people feel squeezed by the path of quality increases laid out to them by consumerism and think it's excessive inflation.

If inflation were higher and GDP growth lower than advertised, it helps explain the equity-take out mortgage craze of the last several years. The rejiggered CPI which cut entitlement spending also helps explain in part Clinton's government surplus accounting. It's not a stretch to to think that at a minimum the new and improved CPI reduced the values of the index by at least 1-2% per annum.

If your grandmother had wheels, she'd be a baby carriage.

http://www.youtube.com/watch?v=Vkw2DdoskPY

I have been working on my early retirement plan since five years ago. As I see my housing/utilities related cost and various insurance payments increase at insanely high rates, I find it harder and harder to stabilize my plans. With that said, I don't see why having the same standard of living in retirement is a myth. I personally expect to have at least the same standard of living in retirement. I don't feel the urge to keep up with the Jones. I save more than half my take home pay each year and have been fairly successful in my investments which I know luck played a role, but I like to think doing my homework had something to do with it too.

Regarding the article I posted early about people living from paycheck to paycheck, I find it incredibly wacky how some of my friends who's household income are also in the $250-500K range are living like that.

I think you are on to something Sunday. Saving it first is far more important than asset allocation or asset selection(I rank the relative importance in just that order).

Your ability to state the obvious as though you have made a profound discovery is second only to your ability to make up facts to support your wacko theories.

Sunday, you rent in Manhattan, no? How have exactly have you seen housing costs increase at insanely high rates? Can you give specifics?

I would also add that utility costs gave been significantly to vastly understated for many years. The true cost of oil is still not close to being reflected.

I just did a table napkin calculation using my famous a one bedroom, I calculated that since 1995 rent has gone up 4% per annum.

inonada, I own my current place so lower interest rates and rents didn't benefit me.

The CPI for practical purposes has been turned into a useless statistic. There's some valuable data in there but when you factor in geometric averages, Hedonism, substitution effects etc what you wind up is opaque and subjective and frankly not reflective of anything recognizable.

I was just thinking what if Boskin was allowed to play with the S&P 500?

I can just imagine how geometric averages and substitution effects would be factored in(clearly investors shy away from over-valued stocks before they crash), And we add 1% to performance if you own a hot stock because you will feel better about owning it and we similarly add 2% for green technology stocks because we are improving the environment.

Sunday, but lower rents DID make it to you! The owner's equivalent rent on your place is down, so you have experienced deflation. Isn't life grand?

There's actually serious argument buried in that tongue-in-cheek comment, though.

If home ownership rate is at roughly 65% and the relationship between rents and real estate valuation is indirect at best, then perhaps the current method is more flawed than the one it replaced.

inonada, it's like unrealized gains/losses, except I end up paying more either way. I believe rent will go up and housing prices will come down, until they meet at the famous "normal" ratios people talk about here. Some people think that doesn't make sense and in the short term maybe they're right.

We at the Big Picture have never been fans of economist Michael Boskin. The infamous Boskin commission was an intellectually dishonest exercise in clever ways to understate inflation, thus lowering Social Security obligations. (I found that approach cowardly, and instead offered up some SS truths).

His commission helped the BLS to habitually understate inflation, the net result of which was to encourage Greenspan’s rate recklessness, setting the table for the 2007-09 crisis. How about Boskin’s “discovery” of a 12 trillion dollar cash horde that the government had somehow “overlooked?” That was used to justify unfunded tax cuts. Afterwards, he issued an Oops, declaring “My Bad.”

http://www.ritholtz.com/blog/2010/09/smackdown-paul-kasriel-vs-michael-boskin/

U promise to drop dead by 70 and we'll correctly measure 'inflation'. Or maybe your retirement plan might have involved more than your coop bubble equity and social security inflation adjustments. No wife, no kids, masturbating for 40 yrs ain't my cup of espresso.