The Shrinking Middle Class in America

[Al B. Sure!]

AS, that's precisely the point. The basket of goods available contains entirely new products, some of which are now almost considered necessities because they are so useful (cell phones, internet access).

Check out "A Hedonic Model for Internet Access Service in the Consumer Price Index" by BLS economist Brendan Williams published in the July 2008 edition of Monthly Labor Review. I can't copy and paste it here but he suggest models to better represent some of what you are talking about. As reported in that Wall Street Journal article I referenced, the BLS is actively attempting to expand hedonic adjustments.

However, while inflation may be currently overstated because of insufficiency of hedonic adjustments to reflect actual quality improvements, there is some controversy that the CPI actually understates inflation by separating fuel and housing prices from the CPI basket; fuel and housing having been extremely inflationary as well as highly volatile over the last several decades.

Check this article out from Investopedia:

http://www.investopedia.com/articles/07/consumerpriceindex.asp

John Williams, a U.S. economist, described his view of this manipulation when he was interviewed in early 2006. Williams prefers a CPI, or inflation measure, calculated using the original methodology based on a basket of goods having quantities and qualities fixed.

David Ranson, another U.S. economist, also questions the official CPI's viability as an indicator of inflation. Unlike Williams, Ranson doesn't espouse the viewpoint that the CPI is being manipulated. Instead, his view is that the CPI is a lagging indicator of inflation and is not a good indicator of current inflation. According to Ranson, increases in the price of commodities are a better indicator of current inflation because inflation initially affects commodity prices and it may take several years for this commodity inflation to work its way through an economy and be reflected in the CPI. Ranson’s preferred inflation measure is based on a commodity basket of precious metals.

It does appear that the differing means of measuring inflation produce disparate indications of inflation for the same period. The November 2006 Consumer Price Index Summary, which is published by the BLS, stated that "During the first 11 months of 2006, the CPI-U rose at a 2.2% seasonally adjusted annual rate (SAAR)". Williams' estimate of CPI for the same period was 5.3%, while Ranson's reported an 8.2% estimate.

[Al B. Sure!]

Also consider, Kuci, more on what I touched before about the change from measuring changes in housing prices to changes in rent.

the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world – a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have raised the total CPI by approximately 1% annually if the switch had not been made.

And consider Kuci, what about the quality of services? Has the quality of services increased over the last 40 years? Services are as is, generally, not adequately represented in the CPI to begin with, let alone any judgments on the quality of services, which many would argue have gone down over the last few decades.

[Kidlicious]

Also, I know Kidicious is usually wrong, but people aren't getting stupider. Better nutrition has actually, iirc, resulted in marked improvements in intelligence over the last century. I don't have data on hand immediately to back up my claim but someone else can google it since I'm lazy.

That depends on what you are calling intelligence. You might think it's remembering formulas. I say it's having sense enough to realize what's happening around you and solving real world problems.

[Kidlicious]

After accounting for inflation, median household income has increased slightly over the past couple decades, so at worst the middle class is only getting poorer in a relative sense, and that's only if the increasing costs of healthcare aren't a product of improvements in quality.

Yeah, and it's also before your wife divorces you and takes the house and the kids. Then you have to live in an apartment that you don't own and pay child support.

[Kidlicious]

Anyway, no one wants to criticize my points and breakdown why I'm wrong? Don't go around talking about free trade is making people poor when indications are that it's having a very negligible net effect either way.

See this is an example of how people are stupider now. Real compensation is the compensation for all income groups. Saying that it's increasing doesn't mean that people aren't getting made poorer from free trade. You have to measure just poor peoples income.

[Kuciwalker]

AS, use your damn brain.

Premise 1: after adjusting for inflation using CPI, wages have stagnated over the past several decades
Premise 2: the median person now enjoys a noticeably higher standard of living than the median person several decades ago
Conclusion: CPI is not accurately reflecting the change in buying power of the dollar

[Fake Boris]

Why are you so concerned about the details and dodging the big picture?

[Al B. Sure!]

AS, use your damn brain.

Premise 1: after adjusting for inflation using CPI, wages have stagnated over the past several decades
Premise 2: the median person now enjoys a noticeably higher standard of living than the median person several decades ago
Conclusion: CPI is not accurately reflecting the change in buying power of the dollar

Use your damn brain!

Let's get the facts here... tell me which one you disagree with and why. I've already talked about every one of these points earlier (a new point at the end to counter your assertion).

There has been virtually no quality improvement in the majority of goods that people buy and the goods that compose the greater part of household spending (ie- food, clothing, utilities, etc.).

Quality improvements of technological goods are accounted for TO AN EXTENT in the CPI through hedonic adjustments. Whether it's sufficient or not, it's still there and is deemed sufficient by the economists at the BLS. This idea that the CPI doesn't account for it is something that bad econ professors and textbooks that haven't been updated say.

Services are not properly represented in the CPI to begin with though they represent an ever-increasing share of spending. One could easily make the argument that service quality has declined over the last 40 years as it has become increasingly impersonal.

Items (fuel and housing) that are highly volatile and have been very inflationary are NOT included in the CPI. Yes, the volatility of gas prices would make calculation more difficult and the CPI would swing wildly with gas prices but that does not mean that there are not times when more and more of household income is being spent at the pump! Gasoline accounts for a significant enough portion of average household spending that spikes in oil prices (as in the summer of 2008) can greatly affect average households (also, what is the rate of substitution for gas?). If prices go up for a commonly purchased commodity and the CPI is not reflecting this increase, could the CPI be understated?

Housing is not included in the CPI though housing prices have skyrocketed since the 1970's. The CPI has switched to an owner's equivalent rent measure but housing prices have increased at 3x the pace of the OER. This obviously would lead to a significant understatement of inflation.

As for your premises and conclusion, you're not considering DEBT! Higher standards of living which are debt-financed can exist if wages have stagnated. The premises do not necessarily lead to your conclusion.

Consider:






The facts are starring you in the face!

[Al B. Sure!]

The funny thing is Kuci, we are in agreement over how retarded the original post was and that free trade is beneficial. I'm just not all gung ho and simplistic like you or KH about these economic matters. Everything is more complicated and less clear-cut than either of you give credit for.

But still no more argument to support the whole inflation doesn't affect the poor thing? Or that inflation represents a depreciation of all assets?

I wonder how much it is you ignoring what I'm saying because you think I'm dumb or you actually realizing that you have misconceptions and don't know things.

[Lefty Scaevola]

I assure you, Americans are not shrinking.

I have dropped a few pounds this year.

[Kuciwalker]

There has been virtually no quality improvement in the majority of goods that people buy and the goods that compose the greater part of household spending (ie- food, clothing, utilities, etc.).

This is both false and missing the point. Margins are important, and you can't reasonably write off everything but food and housing when making an intertemporal comparison of quality of life.

Quality improvements of technological goods are accounted for TO AN EXTENT in the CPI through hedonic adjustments. Whether it's sufficient or not, it's still there and is deemed sufficient by the economists at the BLS. This idea that the CPI doesn't account for it is something that bad econ professors and textbooks that haven't been updated say.

It doesn't matter that they attempt to adjust it; it is immediately obvious after looking at their conclusions that their estimate is flawed.

Services are not properly represented in the CPI to begin with though they represent an ever-increasing share of spending. One could easily make the argument that service quality has declined over the last 40 years as it has become increasingly impersonal.

Irrelevant. Would you rather live in 1970 on the median wage then, or 2010 on the median wage now? If the latter, then clearly the actual welfare of the median individual has improved. Unless you are willing to attribute 100% of that improvement to the increased cost of healthcare, you have to admit that the real value of the median wage in 2010 is higher than the real value of the median wage in 1970, and therefore an inflation calculation that says the real values are equal is wrong.

As for your premises and conclusion, you're not considering DEBT! Higher standards of living which are debt-financed can exist if wages have stagnated. The premises do not necessarily lead to your conclusion.

This is a reasonable point re: my original wording, but is easily dismissed by the version above.

I'm just not all gung ho and simplistic like you or KH about these economic matters.

AS, the difference between us has nothing to do with excessive simplicity and/or epistemological humility. The difference is that I have 1) a vague idea what I'm talking about and 2) basic critical reasoning ability, and you seem to have neither.

[Kuciwalker]

It's reached the point where I should probably make this caveat:

It's not precisely that the inflation calculated is "wrong" (obviously, this depends on your definition of inflation) but that CPI is completely inappropriate for a comparison of median wages over time.

[Kidlicious]

The funny thing is Kuci, we are in agreement over how retarded the original post was and that free trade is beneficial.

Yeah, in fact Kuciwalker has made the same arguments that you're making before. Like the argument that real compensation is relevent to poor peoples wages. In fact there have been maybe 100 of these kinds of threads in the past just on this website and all of the free trade idiots have made that same argument. Ned, Ben Kenobi, Fez, Imran, Solomwi, Ogie, Kuciwalker and KH have all made the same stupid argument. Kuciwalker made it at least three times, once as Luke Skywalker when he was still living with mommy and daddy, once as Kucinich, and once as Kuciwalker. It's as if he thought that because he had a different username that the argument would be smarter. KH made that same argument at least once also, but no one could tell because they didn't understand what he was saying.

But no matter how many times the same stupid argument is made one can be sure that some stupid free trade person will make it in every thread. You can be sure that one day Haudeon Collider will make. In fact, I'd put a bet on that. It could have been this thread, but it wasn't to be. In this thread you are the bonehead to do it.

[Kidlicious]

It's reached the point where I should probably make this caveat:

It's not precisely that the inflation calculated is "wrong" (obviously, this depends on your definition of inflation) but that CPI is completely inappropriate for a comparison of median wages over time.

Inappropriate compared to what, not using it? Inflation can't be measured accurately. That's the real thing here. Yet you and KH and the like don't believe in things that can't be measured, do you? But you keep on talking about them page after page of senseless bs.

[Kidlicious]

Premise 2: the median person now enjoys a noticeably higher standard of living than the median person several decades ago

What in the world are you talking about?