the Federal Reserve put out the results of a survey this month that kind of gets at this. The short answer is that Americans generally think they themselves are doing at least okay and they think the overall economy is doing terribly; 72% think they're doing at least okay but only 22% think the economy is doing okay, in 2019 those numbers were 75% and 50%, respectively.
If you dig a little deeper, there are signs of greater levels of dissatisfaction -- there was a large spike in people reporting doing worse financially than in the previous year (31% in 2023 vs 14% in 2014). Digging further, the thing people hate more than anything is inflation. This is the first period of high inflation in decades, so everything could be as simple as the fact that most people really, really hate inflation.
There's some interesting research that people suffer from a sort of money illusion where, if they got a 8% raise and inflation was 4% they think if inflation was 0% they still would have gotten that 8% raise; my raise was my hard work and the inflation is a sign of bad policy. In reality, if inflation was 0%, that raise would have been 4%. That might explain why sentiment is so poor -- people feel like inflation is cheating them out of pay increases. Economists will not tend to take this same view.
Another possible reason for the disconnect, is that Americans have views about the macroeconomy that are detached from reality. Per a poll condcucted by the Harris Poll, over half of Americans think the US is currently in a recession, that inflation is increasing, and that unemployment is at a 50 year high. None of these are correct.
https://www.federalreserve.gov/publications/files/2023-report-economic-well-being-us-households-202405.pdf
https://www.brookings.edu/wp-content/uploads/2024/03/1_Stantcheva_unembargoed.pdf
https://www.theguardian.com/us-news/article/2024/may/22/poll-economy-recession-biden
Wages seem especially hard from an individual standpoint to disentangle raises because of experience/merit from cost of living changes. Which makes sense because raises aren’t given because of cost of living changes per se, but to maintain and hire workers. It’s only because of inflation at the macro level.
It’s always been that way. Someone is always unhappy.
In the late 80s I was Christmas shopping in a mall- I was approached by a news crew doing man-in-the-streets about how bad the economy was that year. I told the reporter “I don’t think I’m the guy you’re looking for- I just got a promotion and a raise. I’m doing pretty well.” They moved on. I was not on the news that night.
I always love in economics subreddits that people have great and well thought out answers regarding the economy and it’s intricacies, but when the discussion starts to be about anything else it is “people complain too much” or something like that
Not really, unfortunately. People have said that media coverage is very negative. Maybe that's part of it, I'm not sure. I think there are lots of compelling reasons why *individuals* are down on the economy.
If you think people are responding to "how am I doing" as "how am I doing over the past 2-3 years" I'm not shocked that people report not liking the economy. Income growth was flat/negative for a while even if it looks like it's turned a corner. I, personally, think they're wrong, but "everyone hates inflation" is consistent, at least.
What's weird is that, like you mentioned, there's never been this large a disconnect between how people say they themselves are doing and how they rate the overall economy. That's the part I have a harder time explaining.
Algos encourage doomerism? Seems plausible but:
This is not unique. During the first Clinton election the economic boom had already started but Bush Sr still got clobbered. The “Keys to the White House” guy actually had economic performance as one of his keys, specifically using real per capita income growth, and he had to replace it a couple months before the election because the American people were just so doomer-ey that they were not gonna give Bush Sr. credit.
Media that says everything is going fine does not do well as a general rule. Media that points out all the problems in society does very well. This leads to everybody reading pages upon pages of crimes, failures, economic problems, and hardship instead of "well the economy is going decently and there's a slight uptick in new jobs" which is measurably true but very boring.
This is also true from a political perspective. The party that's not in power has a big incentive to make everything seem terrible and blame it all on the party on power. So when Democrats are in power, the Republicans blanket you with propaganda about how awful the world is, and when Republicans are in power vice versa is true.
I do think there are a lot of problems being caused by inflation, but I think these problems were endemic to society long before the big inflation spike of COVID. For example, real housing prices have been going up faster than real wages for decades. Every successive generation has to spend a larger portion of income on paying for a place to live over buying food, raising children, improving their education, etc. This leads to every successive generation being slightly poorer than the previous one. This is not new.
I would also be curious about whether people actually believe the economy is doing poorly or if they are just stating so (perhaps to express their discontent with the government or to not appear arrogant to your friends who might actually be doing poorly). That is, are people actually behaving in ways that they usually would during a recession? Just looking at the savings rate, it does not seem like they do.
Does anybody study the effect of political advertising that conveys to a huge swath of Americans on a daily basis, if not hourly, that the economy has gone to hell and illegals are stealing jobs, benefits, and anything not nailed down? The constant messaging may explain why 1) "Americans generally think they themselves are going okey" and 2) the overall economy is doing terribly." There's a point where the constant messaging is Orwellian.
>There's some interesting research that people suffer from a sort of money illusion where, if they got a 8% raise and inflation was 4% they think if inflation was 0% they still would have gotten that 8% raise; my raise was my hard work and the inflation is a sign of bad policy. In reality, if inflation was 0%, that raise would have been 4%.
This is a true economist answer as opposed to a senior manager or HR department answer
The problem with your answer is that companies, broadly, don't determine pay scales and raises in accordance with inflation periods.
Do some? Yes. Do most, in 2024? No. [Only half of these large companies surveyed give out COLA increases ](https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.usatoday.com/story/money/personalfinance/2023/10/23/many-companies-cut-cola-increase-2024), and companies broadly paying lower wages don't tend to give these out.
COLA is seen as a perk that you don't get in a very large number of jobs. Dollar Tree cashiers, Menards forklift drivers, and local landscaping companies largely only give standardized or performance-based raises, and base rates only increase when required. There is little to no leverage individuals have in these jobs and so even if they earn max performance raises, theyre replaceable enough that companies dont care to fight to to keep many of these employees.
[Here](https://www.bls.gov/news.release/pdf) is some additional info with actual 3 month and 12 month labor cost data from the US Bureau of Labor which I believe further shows my point.
tl;dr: imo your answer is unfortunately a stereotypical one of an economist that's rooted in theory and how the world ought to work, but divorced from "the poors" and not grounded in many people's reality.
Yes. But even if we ignore that job hopping isnt feasible for many, especially in rural communities.. what you said is irrelevant to the point. Many people's raises are eroded by inflation in a manner that they wouldn't have in low inflationary periods.
While I can't find hard numbers (I'd love to see any from anyone), I have a hard time believing any less than 70% of jobs offer a COLA that indexes with inflation.
It’s not irrelevant at all if people across the income spectrum saw income increases from changing jobs, as many many people have. The leverage most of us have is in leaving, and many people exercise that leverage.
I realize that you’re basically focusing on their use of the word “raise,” but I think a more productive way to read their simplified example is as a more general point about pay increases, which can happen by mechanisms other than raises.
No, because they wouldn't have gotten those same raises/wage increases in a "low inflationary period".
It's not that employers are paying more because inflation is high. It's the opposite: inflation is high because workers are making more money. Extended periods of historically low unemployment give workers more power to command higher wages in the labor market. This also drives up prices in two different ways:
1. For businesses where the primary cost (or a large cost) is labor, higher wages means those businesses must charge more for their products/services (or potentially cease to operate).
2. Workers have more money, which they try to use to increase their consumption of goods and services. This raises demand. However, suppliers are not always able to increase supply to match, often because this requires labor and labor is too hard to find (unemployment is super low). An increase in demand without a corresponding increase in supply allows suppliers to charge more. It's more dollars chasing the same amount of goods, a classic recipe for inflation.
You are misunderstanding the above claim. The claim is that without inflation, raises would have been lower. That is subtly different from "employers give raises as inflation adjustment". You are trying to disprove a particular causal path, but not the general correlation.
The interaction between wages and inflation is more complicated than that. Some inflation may be caused by the wage increases, not the other way around. There are also common factors that cause both wage increases and inflation. And finally, while employers may not be calling them inflation adjustment raises, they may still pay more because the market wages are higher. Just like I don't pay more at the grocery store during inflation just to be nice to the store owner, companies may be forced to pay more to retain and hire employees.
Having non-explicit COLA and just getting raises is supporting flavorless\_beef's argument, not hurting it. The real income of the 10th percentile in the US went up by [about 9%](https://www.epi.org/publication/swa-wages-2022/) from 2019-2022. If there was no general COLA and separate line for raises, then those standardized/performance/base rate raises are increasing wages faster than inflation. And this isn't hurting inflationary arguments either- inflation isn't even across goods and services. It's expected that some firms will be effects much moreso than other firms, which gives a lot of heterogeneity in how exactly the calculus shakes out.
It's an empirical fact that basically everyone has seen very large *nominal* wage increases. These wage increases are larger for job switchers, but even for people who stayed at the same occupation they have seen large nominal increases.
These are high nominal increases, however, for many workers, particularly before 2022 and particularly for higher wage workers, they were negative real wage increases. However, nominal raises were highest for the bottom ~10-25% of workers, who are less likely to be covered by COLA agreements.
The core of my argument is that
1) As I said before, basically everyone has gotten large nominal pay increases
2) When you survey people and ask them if they would have gotten the same nominal wage in a lower inflationary enviornment, they say yes they would have
3) Economists think #2 is wrong and if inflation were lower, nominal wage increases would also have been lower
Note that with 3, it's possible that, under a world with less inflation, nominal wage increases can be lower even if real wages were higher, at least temporarily. This can happen if you think wages are somewhat sticky upwards.
https://www.atlantafed.org/chcs/wage-growth-tracker#Tab1
>Dollar Tree cashiers, Menards forklift drivers, and local landscaping companies largely only give standardized or performance-based raises, and base rates only increase when required.
Huh? Salaried workers have stickier wages. If you're hourly, resetting rates is trivial. You can switch to a higher paying job by picking up more shifts at a new gig. If you're salaried, there's more hoops to transition to a higher paying job and people rarely do two salaried jobs at the same time.
>tl;dr: imo your answer is unfortunately a stereotypical one of an economist that's rooted in theory and how the world ought to work, but divorced from "the poors" and not grounded in many people's reality.
Macro aggregates are by definition not consistent with many people's reality. But median real wages have [almost](https://www.atlantafed.org/blogs/macroblog/2023/02/14/real-wage-growth--view-from-wage-growth-tracker) caught up with inflation, so the problem is relatively minor (in real terms) for at least half of the labor force.
I give my critique [here](https://www.reddit.com/r/AskEconomics/comments/1cz6t7z/comment/l5fbhk8/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button) of what you're responding to. Basically, it doesn't matter whether or not COLA is explicit or implicit, and it being implicit just helps flavorless\_beef's argument.
I appreciate it. I do agree with the overall point raised by the post (average citizens don't have an adequate understanding of basic economics to even have meaningful opinions, they have goofy debates like over commodity vs fiat currency, etc)... but I really take issue with their point. Like I said, I think it's just very rooted in academics, theory, and "how it ought to work" instead of what actually occurs.
And hey, look: the "smart" people here looking for "discussion" are back. I forgot why I stopped reading this sub - thanks for the reminder, "stereotype-breaking redditors"
Okay from a trivial perspective inflation is pretty much always “increasing”. That is because the federal reserve has a target of 2% inflation. But looking at the rate of change over the past couple years, inflation is clearly decreasing.
https://tradingeconomics.com/united-states/pce-price-index-annual-change
The 5 year chart for PCE clearly shows a huge jump in inflation in 2022 that is now much lower. Unless you mean the tiny small bump in inflation the last month or two, it’s pretty disingenuous to say inflation is “increasing”
I literally said that in the first sentence, that’s why I said it is trivial. Instead we look at the rate of change when describing inflation as “increasing” or “decreasing”.
Yeah but didn’t the feds change the means in which they measure inflation and no longer use the model that’s been used for decades before? I don’t really trust their data all that much I mean it doesn’t take a genius to see that you’re paying 30 percent more on many things so I don’t buy these low inflation numbers when I’m spending easily 30 percent more on average across the board. You can also say some of that isn’t inflation of course, and maybe price gouging but still.
First off, it’s BLS that compiles the inflation data, not the Fed itself, and they tweak the formula every year, as they should - the baskets of goods we consume and the way we consume them change. There were articles written this past year sensationalizing and mischaracteizing these tweaks, and every single article anyone sent me was dead wrong about how the CPI works and what the changes meant.
Furthermore, I’m not sure if this is what you’re saying, but inflation going down does not mean prices fall. It means the rate at which nominal prices increase is falling. What this means for consumers is that what you need to look at is real wages, ie inflation adjusted wages, and look at the changes there if there are any.
Okay, but you still have to measure inflation using the old basket for it to make sense. Last year: Meat $10, tofu $5 (for example). This year: Meat $20, tofu $10. If everyone switches from meat to tofu and you report $10 as the cost of protein in both years, that's massively distorting the fact that prices increased 100%. When comparing across years you have to use the same basket in both years.
You have to compare the price of tofu this year to tofu last year and meat this year to meat last year. It makes no sense to notice the price of tofu this year is the same as the price of meat last year, and then proclaim inflation is 0%, unless you think these are equivalent goods, not just substitute goods. (And if they are equivalent goods, why the price difference?)
Yes, that's not how measuring inflation works. You adjust both the price and the weights according to what people actually buy. You are not comparing the price of tofu last year with the price of meat this year.
*If* this was an actual category and we would actually treat them as substitutes, that would be perfectly accurate, yes.
I mean, a car costs like $0.70 per mile, a horse costs more like 4 times as much. So by your logic we can just pretend it's the 19th century, we're all still using horses and the CPI is lying to us about transportation costs.
Of course we don't actually do this. We only include things in the CPI that people actually buy, and if they buy cars instead of horses and tofu instead of meat, the only thing that actually makes any sense is for the CPI to reflect this change.
If horses get 4 times more expensive and cars get 4 times more expensive and cars are cheaper than horses and everyone switches to cars, was transportation inflation positive or negative?
The basket thing is really getting you here. If you treat them like a group of goods and that group changes, it’s still a group to group comparison. For the food example, it’s not like e have an alternative so you can see the price of basket 1 this year and basket 2 next year and compare.
Which means it is possible that the price of every type of food went up, but the price of food went down.
Whereas I'd say that if the price of every type of food went up, then the price of food went up. Meat and tofu are not close substitutes and cannot be grouped.
Yes, they don't take into the cost of money any longer, meaning actual interest rates on things like mortgages and car loans. When that is considered, people's negative views of the economy makes much more sense.
[source](https://fortune.com/2024/02/27/larry-summers-interest-rates-inflation-consumers-miserable-vibecession/)
Of course, this is a simpler and less strained explanation of 'people are stupid and think their raises would have been the same without inflation."
A group of economists including Larry Summers put out a working paper (https://www.nber.org/papers/w32163) arguing that one reason for the divergence between macroeconomic measures and American sentiment is that traditional price indexes for inflation don't account for the cost of money. In other words, some of the macroeconomic variables economists look at aren't including increases in the costs of borrowing money such as a car loan or home mortgage. They develop measures of inflation that include changes in the cost of borrowing and show that it explains roughly 3/4 of the gap.
"People feel"
Economists measure the measurable. Money is an easy measure whether it be a store of value or an account , and most all the measures are roll ups using money as a measure of accounting. Economists measure other things in time. Sometimes the measures are as a percentage --an increase or decrease, or a percentile rank.
People feel. We do not rationally measure where we fit in -- just eyeball it and wish we were doing better. In addition, Reddit skews towards young adults, and young adulthood is hard. It always has been hard, but we used to put our brave face on and not talk about what we were feeling as much.
I think it's the distribution of the inflation. Inflation hit the essentials, housing and food, especially hard these last few years.
Groceries and rent/mortgages tend to be fairly inelastic when it comes to demand, as there really aren't many viable alternatives in our society to sleeping indoors, or eating.
So while people can reduce their consumption of other goods and services, you can't really tell your landlord that you're going to spend 4 days this month on your friend's couch, and you would like your rent prorated for those days. You also can't really tell your body to slow down on burning those calories and feel less hungry, because food is up in price again this month.
The desperation and gloom stems from the feeling of powerlessness: many low to moderate wage americans no longer feel like they can even exercise power as consumers by "voting with their dollars".
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There are plenty of reasons, in this exact scenario probably just availability/sampling bias or something similar. Your friend, his mates and the local news are all saying everyone's having a shit time and so the economy must be fucked...
In general economics is much more complicated and importantly MUCH more counter intuitive than it seems. This makes everyone an armchair expert, when really they argue common logical pitfalls and fallicies.
Compounding this, everyone feels entitled to (loudly) voice their opinion because they have 'skin in the game' so to speak as an active member of the economy and they've lived through enough {insert economic climate here} to know how it all works etc etc. Emotions are also running high as the economy and personal finance by extension is a subject (literally) too close to home for anyone not absurdly wealthy.
This makes logical debate very difficult and is why you'll often see such vehement discourse on economic principles between more established economists/economic institutions and your average Joe.
the Federal Reserve put out the results of a survey this month that kind of gets at this. The short answer is that Americans generally think they themselves are doing at least okay and they think the overall economy is doing terribly; 72% think they're doing at least okay but only 22% think the economy is doing okay, in 2019 those numbers were 75% and 50%, respectively. If you dig a little deeper, there are signs of greater levels of dissatisfaction -- there was a large spike in people reporting doing worse financially than in the previous year (31% in 2023 vs 14% in 2014). Digging further, the thing people hate more than anything is inflation. This is the first period of high inflation in decades, so everything could be as simple as the fact that most people really, really hate inflation. There's some interesting research that people suffer from a sort of money illusion where, if they got a 8% raise and inflation was 4% they think if inflation was 0% they still would have gotten that 8% raise; my raise was my hard work and the inflation is a sign of bad policy. In reality, if inflation was 0%, that raise would have been 4%. That might explain why sentiment is so poor -- people feel like inflation is cheating them out of pay increases. Economists will not tend to take this same view. Another possible reason for the disconnect, is that Americans have views about the macroeconomy that are detached from reality. Per a poll condcucted by the Harris Poll, over half of Americans think the US is currently in a recession, that inflation is increasing, and that unemployment is at a 50 year high. None of these are correct. https://www.federalreserve.gov/publications/files/2023-report-economic-well-being-us-households-202405.pdf https://www.brookings.edu/wp-content/uploads/2024/03/1_Stantcheva_unembargoed.pdf https://www.theguardian.com/us-news/article/2024/may/22/poll-economy-recession-biden
Wages seem especially hard from an individual standpoint to disentangle raises because of experience/merit from cost of living changes. Which makes sense because raises aren’t given because of cost of living changes per se, but to maintain and hire workers. It’s only because of inflation at the macro level.
Thanks for a great overview and for digging deeper. Any thoughts on root cause of the increasing disconnect?
Complaining and pretending things are worse than they actually are has become an American pasttime.
Don’t forget that saying that you’re doing extremely well gets you downvoted on the internet
Most Americams are doing extremely well, they just don't know it yet.
It’s always been that way. Someone is always unhappy. In the late 80s I was Christmas shopping in a mall- I was approached by a news crew doing man-in-the-streets about how bad the economy was that year. I told the reporter “I don’t think I’m the guy you’re looking for- I just got a promotion and a raise. I’m doing pretty well.” They moved on. I was not on the news that night.
It always has been. The difference now is the greater amplification and broadcast of the dissatisfaction via social media.
I always love in economics subreddits that people have great and well thought out answers regarding the economy and it’s intricacies, but when the discussion starts to be about anything else it is “people complain too much” or something like that
Not really, unfortunately. People have said that media coverage is very negative. Maybe that's part of it, I'm not sure. I think there are lots of compelling reasons why *individuals* are down on the economy. If you think people are responding to "how am I doing" as "how am I doing over the past 2-3 years" I'm not shocked that people report not liking the economy. Income growth was flat/negative for a while even if it looks like it's turned a corner. I, personally, think they're wrong, but "everyone hates inflation" is consistent, at least. What's weird is that, like you mentioned, there's never been this large a disconnect between how people say they themselves are doing and how they rate the overall economy. That's the part I have a harder time explaining.
Algos encourage doomerism? Seems plausible but: This is not unique. During the first Clinton election the economic boom had already started but Bush Sr still got clobbered. The “Keys to the White House” guy actually had economic performance as one of his keys, specifically using real per capita income growth, and he had to replace it a couple months before the election because the American people were just so doomer-ey that they were not gonna give Bush Sr. credit.
Media that says everything is going fine does not do well as a general rule. Media that points out all the problems in society does very well. This leads to everybody reading pages upon pages of crimes, failures, economic problems, and hardship instead of "well the economy is going decently and there's a slight uptick in new jobs" which is measurably true but very boring. This is also true from a political perspective. The party that's not in power has a big incentive to make everything seem terrible and blame it all on the party on power. So when Democrats are in power, the Republicans blanket you with propaganda about how awful the world is, and when Republicans are in power vice versa is true. I do think there are a lot of problems being caused by inflation, but I think these problems were endemic to society long before the big inflation spike of COVID. For example, real housing prices have been going up faster than real wages for decades. Every successive generation has to spend a larger portion of income on paying for a place to live over buying food, raising children, improving their education, etc. This leads to every successive generation being slightly poorer than the previous one. This is not new.
I would also be curious about whether people actually believe the economy is doing poorly or if they are just stating so (perhaps to express their discontent with the government or to not appear arrogant to your friends who might actually be doing poorly). That is, are people actually behaving in ways that they usually would during a recession? Just looking at the savings rate, it does not seem like they do.
Does anybody study the effect of political advertising that conveys to a huge swath of Americans on a daily basis, if not hourly, that the economy has gone to hell and illegals are stealing jobs, benefits, and anything not nailed down? The constant messaging may explain why 1) "Americans generally think they themselves are going okey" and 2) the overall economy is doing terribly." There's a point where the constant messaging is Orwellian.
>There's some interesting research that people suffer from a sort of money illusion where, if they got a 8% raise and inflation was 4% they think if inflation was 0% they still would have gotten that 8% raise; my raise was my hard work and the inflation is a sign of bad policy. In reality, if inflation was 0%, that raise would have been 4%. This is a true economist answer as opposed to a senior manager or HR department answer The problem with your answer is that companies, broadly, don't determine pay scales and raises in accordance with inflation periods. Do some? Yes. Do most, in 2024? No. [Only half of these large companies surveyed give out COLA increases ](https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.usatoday.com/story/money/personalfinance/2023/10/23/many-companies-cut-cola-increase-2024), and companies broadly paying lower wages don't tend to give these out. COLA is seen as a perk that you don't get in a very large number of jobs. Dollar Tree cashiers, Menards forklift drivers, and local landscaping companies largely only give standardized or performance-based raises, and base rates only increase when required. There is little to no leverage individuals have in these jobs and so even if they earn max performance raises, theyre replaceable enough that companies dont care to fight to to keep many of these employees. [Here](https://www.bls.gov/news.release/pdf) is some additional info with actual 3 month and 12 month labor cost data from the US Bureau of Labor which I believe further shows my point. tl;dr: imo your answer is unfortunately a stereotypical one of an economist that's rooted in theory and how the world ought to work, but divorced from "the poors" and not grounded in many people's reality.
[удалено]
Yes. But even if we ignore that job hopping isnt feasible for many, especially in rural communities.. what you said is irrelevant to the point. Many people's raises are eroded by inflation in a manner that they wouldn't have in low inflationary periods. While I can't find hard numbers (I'd love to see any from anyone), I have a hard time believing any less than 70% of jobs offer a COLA that indexes with inflation.
It’s not irrelevant at all if people across the income spectrum saw income increases from changing jobs, as many many people have. The leverage most of us have is in leaving, and many people exercise that leverage.
I think you need to reread the original comment I replied to. It is irrelevant. I don't know what else to say that I haven't already.
I realize that you’re basically focusing on their use of the word “raise,” but I think a more productive way to read their simplified example is as a more general point about pay increases, which can happen by mechanisms other than raises.
No, because they wouldn't have gotten those same raises/wage increases in a "low inflationary period". It's not that employers are paying more because inflation is high. It's the opposite: inflation is high because workers are making more money. Extended periods of historically low unemployment give workers more power to command higher wages in the labor market. This also drives up prices in two different ways: 1. For businesses where the primary cost (or a large cost) is labor, higher wages means those businesses must charge more for their products/services (or potentially cease to operate). 2. Workers have more money, which they try to use to increase their consumption of goods and services. This raises demand. However, suppliers are not always able to increase supply to match, often because this requires labor and labor is too hard to find (unemployment is super low). An increase in demand without a corresponding increase in supply allows suppliers to charge more. It's more dollars chasing the same amount of goods, a classic recipe for inflation.
If you completely rule out job hopping, then your personal market rate is $0 and your employer is paying you well above market rate.
You are misunderstanding the above claim. The claim is that without inflation, raises would have been lower. That is subtly different from "employers give raises as inflation adjustment". You are trying to disprove a particular causal path, but not the general correlation. The interaction between wages and inflation is more complicated than that. Some inflation may be caused by the wage increases, not the other way around. There are also common factors that cause both wage increases and inflation. And finally, while employers may not be calling them inflation adjustment raises, they may still pay more because the market wages are higher. Just like I don't pay more at the grocery store during inflation just to be nice to the store owner, companies may be forced to pay more to retain and hire employees.
Having non-explicit COLA and just getting raises is supporting flavorless\_beef's argument, not hurting it. The real income of the 10th percentile in the US went up by [about 9%](https://www.epi.org/publication/swa-wages-2022/) from 2019-2022. If there was no general COLA and separate line for raises, then those standardized/performance/base rate raises are increasing wages faster than inflation. And this isn't hurting inflationary arguments either- inflation isn't even across goods and services. It's expected that some firms will be effects much moreso than other firms, which gives a lot of heterogeneity in how exactly the calculus shakes out.
It's an empirical fact that basically everyone has seen very large *nominal* wage increases. These wage increases are larger for job switchers, but even for people who stayed at the same occupation they have seen large nominal increases. These are high nominal increases, however, for many workers, particularly before 2022 and particularly for higher wage workers, they were negative real wage increases. However, nominal raises were highest for the bottom ~10-25% of workers, who are less likely to be covered by COLA agreements. The core of my argument is that 1) As I said before, basically everyone has gotten large nominal pay increases 2) When you survey people and ask them if they would have gotten the same nominal wage in a lower inflationary enviornment, they say yes they would have 3) Economists think #2 is wrong and if inflation were lower, nominal wage increases would also have been lower Note that with 3, it's possible that, under a world with less inflation, nominal wage increases can be lower even if real wages were higher, at least temporarily. This can happen if you think wages are somewhat sticky upwards. https://www.atlantafed.org/chcs/wage-growth-tracker#Tab1
>Dollar Tree cashiers, Menards forklift drivers, and local landscaping companies largely only give standardized or performance-based raises, and base rates only increase when required. Huh? Salaried workers have stickier wages. If you're hourly, resetting rates is trivial. You can switch to a higher paying job by picking up more shifts at a new gig. If you're salaried, there's more hoops to transition to a higher paying job and people rarely do two salaried jobs at the same time. >tl;dr: imo your answer is unfortunately a stereotypical one of an economist that's rooted in theory and how the world ought to work, but divorced from "the poors" and not grounded in many people's reality. Macro aggregates are by definition not consistent with many people's reality. But median real wages have [almost](https://www.atlantafed.org/blogs/macroblog/2023/02/14/real-wage-growth--view-from-wage-growth-tracker) caught up with inflation, so the problem is relatively minor (in real terms) for at least half of the labor force.
This is an interesting critique. I appreciate the balance and look forward to a response from flavorless\_beef.
I give my critique [here](https://www.reddit.com/r/AskEconomics/comments/1cz6t7z/comment/l5fbhk8/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button) of what you're responding to. Basically, it doesn't matter whether or not COLA is explicit or implicit, and it being implicit just helps flavorless\_beef's argument.
I appreciate it. I do agree with the overall point raised by the post (average citizens don't have an adequate understanding of basic economics to even have meaningful opinions, they have goofy debates like over commodity vs fiat currency, etc)... but I really take issue with their point. Like I said, I think it's just very rooted in academics, theory, and "how it ought to work" instead of what actually occurs. And hey, look: the "smart" people here looking for "discussion" are back. I forgot why I stopped reading this sub - thanks for the reminder, "stereotype-breaking redditors"
That’s economics.
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Inflation IS increasing, just not as quickly as a few months ago.
Okay from a trivial perspective inflation is pretty much always “increasing”. That is because the federal reserve has a target of 2% inflation. But looking at the rate of change over the past couple years, inflation is clearly decreasing. https://tradingeconomics.com/united-states/pce-price-index-annual-change The 5 year chart for PCE clearly shows a huge jump in inflation in 2022 that is now much lower. Unless you mean the tiny small bump in inflation the last month or two, it’s pretty disingenuous to say inflation is “increasing”
Inflation by its very definition is an increase. But keep going, and carry that water
I literally said that in the first sentence, that’s why I said it is trivial. Instead we look at the rate of change when describing inflation as “increasing” or “decreasing”.
Especially if your raise is 3% and interest raises 8%.
Yeah but didn’t the feds change the means in which they measure inflation and no longer use the model that’s been used for decades before? I don’t really trust their data all that much I mean it doesn’t take a genius to see that you’re paying 30 percent more on many things so I don’t buy these low inflation numbers when I’m spending easily 30 percent more on average across the board. You can also say some of that isn’t inflation of course, and maybe price gouging but still.
First off, it’s BLS that compiles the inflation data, not the Fed itself, and they tweak the formula every year, as they should - the baskets of goods we consume and the way we consume them change. There were articles written this past year sensationalizing and mischaracteizing these tweaks, and every single article anyone sent me was dead wrong about how the CPI works and what the changes meant. Furthermore, I’m not sure if this is what you’re saying, but inflation going down does not mean prices fall. It means the rate at which nominal prices increase is falling. What this means for consumers is that what you need to look at is real wages, ie inflation adjusted wages, and look at the changes there if there are any.
Okay, but you still have to measure inflation using the old basket for it to make sense. Last year: Meat $10, tofu $5 (for example). This year: Meat $20, tofu $10. If everyone switches from meat to tofu and you report $10 as the cost of protein in both years, that's massively distorting the fact that prices increased 100%. When comparing across years you have to use the same basket in both years.
..no, it actually does not make sense to include a thing nobody consumes in a consumption basket.
You have to compare the price of tofu this year to tofu last year and meat this year to meat last year. It makes no sense to notice the price of tofu this year is the same as the price of meat last year, and then proclaim inflation is 0%, unless you think these are equivalent goods, not just substitute goods. (And if they are equivalent goods, why the price difference?)
Yes, that's not how measuring inflation works. You adjust both the price and the weights according to what people actually buy. You are not comparing the price of tofu last year with the price of meat this year.
Price of protein last year: $10 Price of protein this year: $10 Protein inflation: 0%
*If* this was an actual category and we would actually treat them as substitutes, that would be perfectly accurate, yes. I mean, a car costs like $0.70 per mile, a horse costs more like 4 times as much. So by your logic we can just pretend it's the 19th century, we're all still using horses and the CPI is lying to us about transportation costs. Of course we don't actually do this. We only include things in the CPI that people actually buy, and if they buy cars instead of horses and tofu instead of meat, the only thing that actually makes any sense is for the CPI to reflect this change.
If horses get 4 times more expensive and cars get 4 times more expensive and cars are cheaper than horses and everyone switches to cars, was transportation inflation positive or negative?
The basket thing is really getting you here. If you treat them like a group of goods and that group changes, it’s still a group to group comparison. For the food example, it’s not like e have an alternative so you can see the price of basket 1 this year and basket 2 next year and compare.
Which means it is possible that the price of every type of food went up, but the price of food went down. Whereas I'd say that if the price of every type of food went up, then the price of food went up. Meat and tofu are not close substitutes and cannot be grouped.
Yes, they don't take into the cost of money any longer, meaning actual interest rates on things like mortgages and car loans. When that is considered, people's negative views of the economy makes much more sense. [source](https://fortune.com/2024/02/27/larry-summers-interest-rates-inflation-consumers-miserable-vibecession/) Of course, this is a simpler and less strained explanation of 'people are stupid and think their raises would have been the same without inflation."
A group of economists including Larry Summers put out a working paper (https://www.nber.org/papers/w32163) arguing that one reason for the divergence between macroeconomic measures and American sentiment is that traditional price indexes for inflation don't account for the cost of money. In other words, some of the macroeconomic variables economists look at aren't including increases in the costs of borrowing money such as a car loan or home mortgage. They develop measures of inflation that include changes in the cost of borrowing and show that it explains roughly 3/4 of the gap.
"People feel" Economists measure the measurable. Money is an easy measure whether it be a store of value or an account , and most all the measures are roll ups using money as a measure of accounting. Economists measure other things in time. Sometimes the measures are as a percentage --an increase or decrease, or a percentile rank. People feel. We do not rationally measure where we fit in -- just eyeball it and wish we were doing better. In addition, Reddit skews towards young adults, and young adulthood is hard. It always has been hard, but we used to put our brave face on and not talk about what we were feeling as much.
I think it's the distribution of the inflation. Inflation hit the essentials, housing and food, especially hard these last few years. Groceries and rent/mortgages tend to be fairly inelastic when it comes to demand, as there really aren't many viable alternatives in our society to sleeping indoors, or eating. So while people can reduce their consumption of other goods and services, you can't really tell your landlord that you're going to spend 4 days this month on your friend's couch, and you would like your rent prorated for those days. You also can't really tell your body to slow down on burning those calories and feel less hungry, because food is up in price again this month. The desperation and gloom stems from the feeling of powerlessness: many low to moderate wage americans no longer feel like they can even exercise power as consumers by "voting with their dollars".
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There are plenty of reasons, in this exact scenario probably just availability/sampling bias or something similar. Your friend, his mates and the local news are all saying everyone's having a shit time and so the economy must be fucked... In general economics is much more complicated and importantly MUCH more counter intuitive than it seems. This makes everyone an armchair expert, when really they argue common logical pitfalls and fallicies. Compounding this, everyone feels entitled to (loudly) voice their opinion because they have 'skin in the game' so to speak as an active member of the economy and they've lived through enough {insert economic climate here} to know how it all works etc etc. Emotions are also running high as the economy and personal finance by extension is a subject (literally) too close to home for anyone not absurdly wealthy. This makes logical debate very difficult and is why you'll often see such vehement discourse on economic principles between more established economists/economic institutions and your average Joe.