The true cost of living

An economist named Oren Cass has written an argument for something I’ve long suspected—that inflation is not measured correctly, and that statistics that show average income keeping up with inflation are bogus.

The chart above shows that a median male wage-earner in 1985 could pay for four basic family needs—housing, medical insurance, transportation and education—in 30 weeks of earnings.  By 2018, those expenses would take up 53 weeks of that family’s earnings.

Which, as Cass pointed out, is a problem, since there are only 52 weeks in a year.

But most published economic statistics indicate that typical workers’ inflation-adjusted earnings are increasing.

Case said that is because of how inflation is now calculated.

For example, he said, inflation-adjusted data says that the price of automobiles has not increased since the 1990s.   Obviously that isn’t true.  But the argument is that today’s cars have so many features that cards didn’t have 15 or 20 years ago that the higher price isn’t inflation—it’s the cost of quality.

It’s true that the 2018 Grand Caravan (price $26,300) has many features that the 1996 Grand Caravan ($17,900) did not have.  The problem, as Cass pointed out, is that if you don’t have that extra $8,400, you can’t go back to 1996 and buy the older model.

The same problem exists in housing and medical insurance.

It’s true that most families have two income earners, not just one.  But there was a time when one American breadwinner could bring in enough to support a family.

§§§

Update 2/23/2020

These alternate inflation charts from shadowstats.com show how the method of calculating the rate of inflation has changed over the years.

The top chart is an estimate of what the official rate of inflation would be if the method of calculating inflation had not been changed since 1980.  the bottom chart is an estimate of what it would be if there had been no change since 1990.

The result of these changes is that the government and private employers have to pay out less in “cost of living” increases, and that working people seem to be doing better than they otherwise would.  It explains why middle-class families, who earn seemingly good incomes, find it hard to cover expenses.

LINKS

Oren Cass Twitter thread 1/16.

The Cost of Thriving by Oren Cass for American Affairs Journal.

Alternate Inflation Charts by John Williams on Shadow Government Statistics.  [Added 2/23/2020]

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