I have shorthand notions of the editorial position I should expect from various news outlets. For example, I think that the New York Times in general represents the view of people who live on the Upper West Side of Manhattan or wish they did and that the Wall Street Journal tends to represent the views of the “investor class”.
Maybe it’s no longer the case but it certainly used to be the case that the Washington Post reflected the views of the Washington, DC nomenklatura. If it’s still the case and this WaPo editorial is any gauge, they’re beginning to worry about inflation or at least the political implications of inflation:
It has been a generation since Americans had to worry about inflation. Leaders across Washington must not underestimate the havoc unrestrained price rises could wreak.
The government reported Wednesday that prices rose 0.9 percent in October, faster than they did in the three previous months. Since a year ago, prices have risen 6.2 percent. Though volatile food and energy costs contributed to the bump, they are not the only factors. “Core inflation†rose 0.6 percent in October; it is up 4.6 percent year-over-year. Car prices, for example, are way up. Yet inflation was brisk after stripping those out of the calculation, too.
These numbers do not represent some abstract macroeconomic variable; one of the results of the price hikes is that Americans’ real wages are declining. Accounting for inflation, average hourly wages fell 1.2 percent from a year ago.
Forecasters at the Federal Reserve and elsewhere had projected much tamer inflation after spikes earlier this year. Now the best spin the White House’s Council of Economic Advisers can put on these persistently high numbers is that the average increase over the past three months is slightly lower than it was three months before that.
The question that no one seems to be asking is why the Federal Reserve’s forecasters have been wrong. Momentary glitch? Or is their model using bad assumptions?
Amazingly, the editors treat it as a messaging problem:
Responsibility lies first with the Fed to project a message of both concern and stability. The central bank in the recent past had reoriented its policy toward promoting full employment rather than fighting inflation. Though the Fed has begun tapering the stimulative “quantitative easing†program it introduced during the covid-19 downturn, at its current pace it would not end the program until June, with possible interest rate hikes to follow. Making clear that the bank could take stronger measures if high inflation persists would in itself depress inflationary expectations.
I wonder what in the world gave them that impression? Quite to the contrary my impression has been that for the last decade the main focus of the Fed has been on maintaining the stability of the banking system. How else do you explain persistent measures that incentivize banks not to lend?
Today I’ve seen several opinion pieces that attempt to explain that controlling inflation is, in general, beyond the control of the president. While I think that’s true I also think we should remember the Law of Holes: when you find yourself in a hole, stop digging. IMO one of the problems is that the Democratic leadership only has one strategy: stimulate consumer spending and consumer spending is part of the problem. We don’t need to stimulate consumer spending but to encourage saving and additional business investment. We need to produce more.
For a household with income at the median, something like 50% of income is spent on rent, food, and energy (electricity and fuel for vehicles). Since all three of those have risen sharply over the last year, people notice. Those with incomes below the median notice a lot more; those with incomes above the median notice less.
I think that answers Cullen Roche’s question. Since things are so good why are people so pessimistic?
Here are some interesting stats about the current state of affairs:
- GDP – all-time high
- Stock prices – all-time high
- Real estate prices – all-time high
- Household net worth – all-time high
- Corporate profits – all-time high
These are amazing statistics given where we were just a year ago.
After citing the lousy state of consumer sentiment he asks:
So, what gives? I don’t really know to be honest.
The answer, as he goes on to point out, is that for ordinary people things don’t look so good.
Judging by the concern expressed by the WaPo’s editors, the reality on the ground is starting to dawn on the folks in Washington.
Didnt Sumner point out that those in the lower income levels have seen larger increases in income so that real wages for them have increased? Added on the positive list people, can feel free to quit their jobs whenever they want knowing they can easily get another job. So maybe since I lived through inflation at 10% so inflation below 5% doesnt seem so awful but I think the obsession in the media over inflation is probably a big factor in consumer sentiment. On the other hand inflation now does seem to be an international problem affecting lots of other countries. Suggests it might be harder to fix.
Steve
“point out that those in the lower income levels have seen larger increases in income so that real wages for them have increased”
The counterargument is we don’t have measurements of CPI for lower incomes but they are likely higher then the overall CPI.
After all, energy (oil, heating), food, cars, rent have gone up more then the overall CPI yoy (6.2%) and they are a bigger proportion of total spending for lower incomes. Mathematically, that’s a high likelihood lower incomes are experiencing higher inflation.
Could be, but enough for the worst consumer sentiment ever? Worse than during the Great Recession where people lost homes and jobs?
Steve
Lets not overstate/understate things.
University of Michigan consumer sentiment index was 66.8 in November. Which is significantly above 60 during the nadir of the great recession.
At the same time, inflation is the highest in 4 decades.
In the post-war era, CPI inflation has been higher then 6% in the following years; 1946, 1947, 1951, 1969, 1973-1975, 1977-1981, 1990.
IMO a key point is that inflation is less concerning to those who can vote themselves raises or have a reasonable expectation that others will do it for them. I think it’s clear we’ve reached a point at which wages for public employees need to be strictly linked to the prevailing wages in the communities they serve.
Link goes to consumer survey broken down by political affiliation. Look at the Republican column. In 1980 inflation was 13.5%. Look at March 2009. Obama is POTUS and people are losing homes and jobs. Now with inflation at about 5% and just about every other indicator positive this is the worst ever sentiment.
https://data.sca.isr.umich.edu/fetchdoc.php?docid=68644
Steve
Nothing could please me more than watching Democrats deny the economic issues being experienced by voters. It will pay dividends.
Inflation has a number of harmful effects:
1. Dave mentions those who can insulate themselves by voting raises.
2. Related – an inherently better position of large vs small business in dealing with inflation.
3. Related II – the sham of eliminating core expenditures like food and energy because they are volatile to underestimate the effect on lower income groups. Who wants to make the case that the bottom 50%’s wages will increase 12-15% over two years?
4. Tax bracket creep.
5. Distortion of investment decisions, especially increasing the cost of capital.
Steve can polly parrots his Democrat talking points if he wishes. He probably also still believes in the Steele dossier.
I got distracted and forgot to note one of the worst aspects. The aged on fixed incomes have almost no hope of maintaining their purchasing power.
This notion that inflation will somehow abate by ramping up spending is truly bizarre.
Its a dem talking point to ask why some people are more upset over inflation at 5% than they were with inflation at 13.5%? Whatever. A dem talking to point to wonder why so many other countries are also having inflation issues? Sure. You would do much better not addressing that and just changing the subject. (Oh, you did!)
Pretty sure I have never mentioned the Steele dossier. Seems to be your hang up. I know you keep hoping that these eternal investigations of your will turn up something. But hey, if Durham/Dunham/whoever doesnt find anything maybe you can do 8 more investigations and break the Benghazi record. Go for it!
Steve
I think inflation now is qualitatively different than it was in the 1970s. During Carter’s presidency real median wages had been increasing sharply for decades and the expectation was that they would continue to do so. Sadly, that hasn’t been the case and even a period of lower inflation is worrying when real median wages are increasing as slowly as they have been for ordinary people.