> In other words you had 1 man working 50 hours a week afford a house...
With inflation, we want to know about the change in value of the dollar only. We don't want to factor in the change in value of houses, food, etc. There is a place for understanding that too, but inflation is not it. Something like a cost of living index is more suitable to that kind of information.
On that note, houses are unquestionably more valuable today. For one, they are twice the size they were 60 years ago. We can all agree that a bigger house has more value than a small house, at least within reason. You can fit more in it, it is more comfortable, etc. and that is valuable. They are also a lot safer. That too is more valuable.
As such, a housing costing x% more today than as compared to some time in the past does not mean that inflation is x%. Again, we only want to know about how the dollar changed in value, not housing. Of course, if you only have numbers, it is impossible to know what share is due to housing being more valuable and what share is the dollar being less valuable, although we can say with great certainty that it is some combination of both.
CPI tries to tess out what is the dollar portion only by looking at a large basket of goods of things people buy frequently. Where you see common moment in the change in price across all items in the basket, that is assumed to be the change in value of the dollar. It's not perfect. There is no perfect metric. You are quite right that one should look at many different models, even though none of them will be perfect either. It is all good information, none of it great, but at some point you have to pick a single number.
They also have better insulation and construction, they’re all wired for electricity and plumbing, they all have advanced HVAC. Fancier kitchens with more plumbing, appliances and nicer materials. People have access to more furniture and fixtures and appliances to fill more home - no one needed laundry rooms before a washer/drier was invented. Few had garages. Don’t let survivorship bias fool you - the 1950s homes that working class families had were not that nice.
The homes today cost more because more goes into them. We could all live in stuck huts we made ourself like in 1750 and everyone could afford two houses in 2024. Instead, housing has gone up because the utility of that housing has gone up.
Oh and of course we’re not making nearly as many per-capita as we used to. So the scarcity is going up.
Have you seen the price of land recently? It’s more than half the price of construction! Mud hut, pole barn, unserviced cabin, what-have-you, the land is going to be a major and significant expense.
That’s only in high-demand areas. You can get dirt cheap land in most of the US - but obviously demand to live there is low. You wanna live in the bay are, and your cost is largely land. But you can’t build a modern home without significant cost, even if the land was free.
It absolutely raises the “floor” of the housing costs - more materials simply means more costs. And the labor to do extra work means more costs - and quality labor is much more expensive today. Same reason a bigger house means more costs.
I would posit - admittedly without data - that outside of major metros where land is the clear dominant cost, most costs for housing increase is labor.
There are houses and empty lots available within 15min of downtown Cleveland that are selling for <50k. If you go up to $100k, there are dozens of houses. They’re all empty lots or houses that need renovations. If you want a new construction in the same neighborhood, it’s $300k. The cost difference is labor or materials.
Obviously Cleveland is a cherry-picked example but I used to live there so I picked my old neighborhood. San Francisco, Boston, Seattle, etc are obviously mostly driven by land costs due to demand and very high incomes.
Having worked near these neighborhoods the value you put in would be at a high risk. It's very possible you'll be assaulted, your home will be robbed, and the market value won't match the renovation costs.
All that said, some parts are gentrifying. Though mostly where developers can get large enough plots.
Yea for sure. I lived near there for a short while (in school) and have some friends in the area still.
The point is that most of the cost of these homes are labor - even when land is nearly free (<50k in a city), you can’t get a “cheap” home that’s made to modern standards. If the land is free, there is no demand and high supply, but the house is expensive- it’s labor or materials driving the cost.
Show me a company that can sell a less advanced 1960s style house for the average worker's median income and I'll show you the next 100-billion dollar company.
The 1960s supply chain isn't there anymore. Where are you going to find, for example, asbestos insulation? No single company can take that all on. It would require coordination across much of the entire population.
Perhaps housing is important enough to see the people do that. But even if you could somehow faithfully recreate the entire supply chain, the house won't be up to code. That 100-billion dollar company is going to spend all that money in the courts. Why bother?
Okay, sure, if the people can come together to recreate the supply chain they can also change the code. But then who actually wants to live in a 1960s home? Even the homes actually built in 1960 that are still standing, which is generally going to be those that were built to a higher standard, have been upgraded to modern standards, at significant cost, over the years because nobody actually wants to subject themselves to the 1960s.
And even if you could build the perfectly equivalent house with modern supplies and people actually wanted to live in them, there is still that pesky labour cost, which is a significant portion of the building cost. Yes, the median income of a full-time male in 1960 is almost exactly the same as the median income of a full-time male today, but the median income of the population at large doesn't tell the story of those building houses. Someone who would have worked on a job site in the 1960s is more likely to work in something like a restaurant today. As a result, of those who still are willing to build houses, you have to pay a lot more to get them to show up. "The trades are where the money is now" may have become somewhat of a meme, but there is also a kernel of truth to it.
Now, a business that can make modern houses less valuable will be on to something. That's a 100-billion dollar company. But also a hard problem to solve.
> Pick whatever word you like if "inflation" is reserved for economists because regular people are "just too dumb to understand".
Regular people understand inflation just fine. How useful it is to them is debatable, but it doesn't have to be for everyone. It's okay if some measurements are only useful to scientists and economists. The measure of the speed of light doesn't mean much in my day to day life either, but we don't have to abolish it because of that.
> We need a concept for debasement / hidden tax that allows people to hold their policymakers accountable.
I think what most people are looking for is simply cost of living measure. They want to know by how much the costs to live (housing, food, etc.) have increased over inflation. Which we have. But that one might actually be a case of being "too dumb to understand", explaining why it is not commonly put to use. Inflation is, indeed, a much simpler concept. Or it may be that the ultimate cost of living measurement comes from one's own personal accounting records[1], negating the need to reach for any 'universal' perspective.
[1] But I suspect most people don't keep any accounting records, so most likely the first one.
> what most people are looking for is simply cost of living measure
You may have cracked the conundrum right there. People use inflation as a gauge of COL. That is incorrect, but understandable given the lack of a well-publicised national COL metric.
Which is interesting as you'd think actually living, and incurring the costs that go along with it, would be a much more useful gauge.
Probably goes along with my suspicion that most people, especially those not already accounting for business activities, don't keep any meaningful record of their transactions. Hard to calculate COL without data.
But at the same time, there isn't much effort in publishing national COL metrics as it is presumed that people will already know their own situation, which is always going to be way more telling. Individual COL can vary widely, even between neighbours, let alone on a national scale.
> you'd think actually living, and incurring the costs that go along with it, would be a much more useful gauge
Not for a monetary authority. Given how much drama we have around even our Census Bureau, this gap makes sense. (Also, for every complaint about a given inflation gauge, one increases the parameter and thus bitchable space by orders of magnitude when it comes to COL.)
> there isn't much effort in publishing national COL metrics as it is presumed that people will already know their own situation
We track this information, though. Anyone doing any economic-related work will be well familiar with the data. We just don't publicize in any grand fashion because who else needs to hear it? I'll grant you that people who write comments on the internet tend to be completely out to lunch, but most people have some kind of handle on their COL situation. They aren't going to learn anything they don't already know, so there is no reason to listen in. You need demand in order for supply to show up.
Inflation doesn't mean much to Average Joe either, to be fair, except it is a leading indicator of interest rates, and Average Joe does care about interest rates, so this is why Average Joe is listening for inflation information.
> But political leaders won’t.
The leaders are the people. The very same people.
If you are trying to imply that the leaders are as lazy about democracy as they are accounting, and are willing to let the hired help do whatever it wants because they don't want to ever have to take the time to talk to them, I'm with you. Not much you can do there. But if they don't care, nobody else is going to either.
For me, I'm not surprised inflation went up. We had a global lockdown during which some industries made a lot of money and some industries made little to no money. Once the lockdown ended, I assume the ones who made a lot started to lose sales and increased their prices to keep growing. I assume the ones who didn't make a lot of money started to increase sales again and probably increased their prices to recover the money they didn't make. I imagine both of them want to make sure they have enough money to survive another global crisis, especially the ones that almost didn't survive it.
So, yes, I think the government has a role in trying to limit inflation (and also increase wages), I just think that some inflation makes sense from those dynamics above.
The US gets more and less dangerous over time, it varies. It's presently a little bit more dangerous than the early 60s, but way less dangerous than the 70s-90s.
You are completely mathematically illiterate if you think that annual inflation is 3-5 times higher than the reported value. The average annual inflation since 1960 is 3.7%. If the real annual inflation were 3x that (11.1%) then we would have seen 85000% cumulative inflation since 1960. A gallon of gasoline cost $0.30 in 1960, so it would cost $250 in 2024 under 850x inflation. In reality a gallon of gas costs $3.60 today, which is not far off from the 10.5x inflation the CPI measures over that time frame (the same CPI you claim is massively understated).
You're running around this thread smugly declaring yourself too smart to fall for the government's lies while failing to spend a few seconds doing the trivial arithmetic that would disprove all of your deeply held beliefs. Which of your other political or economic beliefs will fall apart with a little bit of middle school math?
Your account has been breaking the site guidelines repeatedly and we have to ban that sort of account, so if you'd please review https://news.ycombinator.com/newsguidelines.html and stick to the rules from now on (regardless of how wrong anybody else is or you feel they are), we'd appreciate it.
Are you seriously insisting that the average product has gone up in price by 850x since 1960 and that gasoline is a huge outlier that has appreciated much much less than everything else?
> With inflation, we want to know about the change in value of the dollar only.
By "we", you are referring to you and others who want to know only this.
Some people (not many) want to know what is going on comprehensively, and in fact. For example: I would like to know if there is any strategic changing of formulas to improve appearances going on, like there has been at pretty much every single job I have ever worked on.
But to be fair, this is a subjective personal preference, and an unusual one at that. Most people prefer simplistic, memetic representations of reality (though, few can agree on which memes).
> By "we", you are referring to you and others who want to know only this.
Right. I am referring to all those who want to know only this, along with everyone else. Because those who want to know something else would use another measure. Those complaining that inflation doesn't give you some other economic indicator is like someone complaining that temperature is not a good measure of distance. Well... duh.
> Some people (not many) want to know what is going on comprehensively
Absolutely. Which is why we have many different ways to look at inflation. In fact, don't White House economists use 30-some-odd different measures of inflation throughout the course of their work?
But eventually you are going to want to put it to practical use, mathematically, and our formulas require a single number. CPI is the one we picked to standardize on (but, of course, you can choose another if you want). It won't be 100% accurate – determining that is fundamentally impossible and you know that going into it – but it will be good enough.
> Right. I am referring to all those who want to know only this, along with everyone else.
"along with everyone else" is incorrect, because you have no way of knowing what other people want (and worse, maybe no way to know that). And the only way you "know" what "all those who want to know only this" is because it is a tautology, it is necessarily true. Though, you have no way of knowing what percentage of the population thinks like you do, so it is not particularly informative knowledge.
> Because those who want to know something else would use another measure.
Some people (me) would like to see all methodologies maintained indefinitely on a chart, so we can see how different versions of The Truth vary over time. I am interested to see if changes in methodology tend to correlate with changes in the "vibe" of the cost of making ends meet people are experiencing. I prefer this approach because it is more transparent, and because I do not trust my government, or the perceptions of my fellow Westerners (because of the way they think: how it "is", is how it seems to be....which tends to correlate quite nicely with how it is said (repeatedly) to be).
> Those complaining that inflation doesn't give you some other economic indicator is like someone complaining that temperature is not a good measure of distance.
It is also "like" someone whining about how appliances don't last as long as they used to, but "is likes" are often more misinformative than informative (perhaps why they are so popular?).
> Well... duh.
Are you blaming others for the way you think?
> Absolutely. Which is why we have many different ways to look at inflation.
And also why I do not want historic "truth discovery" methodologies memory holed.
> In fact, don't White House economists use 30-some-odd different measures of inflation throughout the course of their work?
Don't know, but I do not trust them.
Also, "in fact" terminating with "?" is a rather interesting approach.
> But eventually you are going to want to put it to practical use, mathematically, and our formulas require a single number.
Maybe we should get better formulas, because reality does not fit so nicely into simple, reductive, misleading models.
> CPI is the one we picked to standardize on
No, "we" did not pick it, someone else picked it "on our behalf"...according to "democracy" we are trained to believe, though it is not both flawlessly true and not misinformative.
> (but, of course, you can choose another if you want).
I can't get it published as "fact".
> It won't be 100% accurate – determining that is fundamentally impossible and you know that going into it – but it will be good enough.
Good enough to satisfy people that want to be satisfied, but not good enough to satisfy all.
> No, "we" did not pick it, someone else picked it "on our behalf"
With a gun to your back, eh? We can use whatever source of inflation we want. Nobody is selecting for us. But, as it happens, CPI is the one we've chosen as the default. If we change our minds, we don't have to default to it forevermore. It's up to us.
> Are you blaming others for the way you think?
I don't think. You do enough of that for all of us. No need for me to duplicate efforts.
I relay the state of the world to the thinkers so they don't have to. The efficiency of specialization!
> Good enough to satisfy people that want to be satisfied, but not good enough to satisfy all.
Which, again, is why we have many sources of inflation. Pick a different one if need be. Indeed, there is good reason why there is more than one.
And if inflation isn't the right tool for the job, which is probably the case, use a different economic measure. There are many tools in the toolbox. You don't have to measure distance with temperature.
Let's be real, the only reason we talk about inflation at all is because it is shares a relationship with interest rates. Interest rates are what people actually care about here. As principal value declines with inflation that makes borrowing more attractive, thus interest rates need to compensate, thus a change in inflation rate serves as a useful leading indicator of interest rate movement. If it weren't for that, it is doubtful that anyone, economists and statisticians aside, would even know that inflation is a used measure.
Beyond interest rates, it doesn't mean much to Average Joe. Average Joe is more worried about things like cost of living. Inflation isn't meant to be useful to Average Joe, though, it is for economists who need to look at much more than Average Joe. Average Joe is free to use it if we wants, but it's funny when he starts complaining that it doesn't work right when misapplied.
People discuss inflation because everyone from the Economist to Yellen to the President brings up inflation numbers whenever people start feeling their COL increase, or when people demand better state services etc. It is one of the most widely publicized economic indicators, along with GDP, unemployment rate, and foreign debt.
But in many of these discussions, it is deliberately being presented as equivalent to COL, which is never addressed separately. So, in reality, for the vast majority of people who learn about these numbers from the media, not economics degrees, "inflation" actually refers to COL, except that the numbers they are given are the ones for what economists call inflation.
Given that a word is defined by what the majority of the people using it mean by it, I think inflation in common English is closer in meaning to COL than to the technical economics term inflation.
> it is deliberately being presented as equivalent to COL
It kind of is. That's what makes it confusing, I suppose.
If you buy a house of equal value as compared to 60 years ago, then the amount in dollars you will pay, when adjusted for inflation, will be equivalent to 60 years ago (within some margin of error; inflation is impossible to calculate perfectly). If we live exactly like they did in 1960, then inflation and the change in cost of living are the same thing.
But, people expect more today. As mentioned in several comments up-thread, take housing: They are bigger, safer, more energy efficient, more attractive, more comfortable, etc. Alongside that, the married family unit is quickly dying – people are more likely to be single nowadays, so we place more value on being able to live alone. Land is more valuable too. This is particularly noticeable anywhere near agricultural areas, where climate instability and more mouths to feed in the world has made food more valuable, making farmland more valuable, making urban sprawl out into the farmland more expensive. It goes on and on and on. So, even if the dollar was of constant value, you would unquestionably paying more for a house today as compared to in the past. But you're getting more! People are willing to pay more, in constant dollars, because it is worth it.
Only on the dollar side are you getting less. The so-called 'hidden tax'. This is what inflation tries to find. If you are a politician speaking to the people, especially on a national scale, this is the only thing in your control, the only thing that is relevant to you. People choosing to buy bigger and better things is not really of your concern. Why shouldn't someone be able to buy something nicer if they want to?
> Given that a word is defined by what the majority of the people using it mean by it
In the absence of any other definition, that is true. If a speaker defines a word, though, then that new definition takes force while they are speaking. And economists and the President have most definitely provided a specific definition for "inflation".
> I think inflation in common English is closer in meaning to COL than to the technical economics term
I'm quite sure the most common definition is "that single number they talk about on the news", which is equivalent to CPI, which is most definitely not a cost of living measure.
> We can use whatever source of inflation we want. Nobody is selecting for us. But, as it happens, CPI is the one we've chosen as the default. If we change our minds, we don't have to default to it forevermore. It's up to us.
a) Who, specifically, is "we" in this context?
b) What is your information source for these facts?
> Beyond interest rates, it doesn't mean much to Average Joe.
What is your information source for the meaning contained within the minds of the average Joe? Please be specific, please at least try to speak truthfully.
Changing human nature seems rather analogous to the difficulty of nuclear fusion, and I suspect it is similarly powerful/useful if a trick could be found to accomplish it. At least we're trying with nuclear fusion.
>On that note, houses are unquestionably more valuable today. For one, they are twice the size they were 60 years ago. We can all agree that a bigger house has more value than a small house, at least within reason. You can fit more in it, it is more comfortable, etc. and that is valuable. They are also a lot safer. That too is more valuable.
Keep in mind, demand was higher with the baby boom than it is today. Houses also used to be built to much higher specifications. Old houses were made with tons of premium timber that is still valuable even 50+ years later.
That is mostly survivor bias and cost of materials difference. We’ve used up most of the stores of large timber causing the price of it to go way up. At the same time the price of construction grade metal has come way down. Thus large beam construction has become a luxury.
As for housing quality, post war tract homes were wildly worse. My wifes family still owns the tract home they lived in growing up. It was exposed concrete, exposed roof and no ductwork until a HUD funded remodel in the 70s. It’s also 750 sq feet. A modern double wide trailer is higher quality.
>At the same time the price of construction grade metal has come way down. Thus large beam construction has become a luxury.
Have you ever seen an old 2x4? This isn't "large beam" but it's obviously higher-quality than new 2x4s.
>As for housing quality, post war tract homes were wildly worse. My wifes family still owns the tract home they lived in growing up. It was exposed concrete, exposed roof and no ductwork until a HUD funded remodel in the 70s. It’s also 750 sq feet. A modern double wide trailer is higher quality.
There used to be some homes built to low specifications. But most were built super solid. Ductwork, insulation, and just about anything else can easily be upgraded. Compared to classic European houses, ours are temporary trash.
>A modern double wide trailer is higher quality.
You just discredited yourself there to everyone who knows even a little bit about houses. Go find a 50 year old trailer and see how that looks lol. American houses are optimized for size at the expense of permanence, and trailers are no different. They are cheap for a reason. Although they can be good for some people (no judgement here), it's just not on par with either a new house or an old one.
> Have you ever seen an old 2x4? This isn't "large beam" but it's obviously higher-quality than new 2x4s.
The 2x4 was decreased in size below 2x4 in the 1920s because shipping costs started dominating lumber prices because we’d depleted the forests near the cities where demand was greatest. It was further reduced during the second world war because building of necessity became standardized and again shipping volume was of primacy.
The US forest labs did tons of tests on this in the 1920s fwiw proving there was no quality difference.
Now there are many fine homes left from prior to these changes, but there are many many more crap homes that are gone because they weren’t capable of lasting. These are the homes you should be comparing to the average home built today.
But you mostly can’t. When you can, as in my example, you will find the older homes were built to similar specs as today from a structural stand point but much lower spec on systems, finish and especially size.
This doesn’t even touch on tenement apartments where most of the population lived in cities (the place housing costs have swelled the most).
These would quite literally be considered incapable of being housing now.
I am certainly not an expert on housing but my father was professionally and I did help my grandfather add an addition to our family farm house that was from the 1910s, when it was literally 1 room without plumbing (they’d done a previous remodel in the 60s to add bedrooms and plumbing, the materials from that remodel were not significantly different than the materials we used in the 90s).
>The US forest labs did tons of tests on this in the 1920s fwiw proving there was no quality difference.
Lol if you see old 2x4s and new 2x4s first-hand you'll know immediately that this is wrong.
>Now there are many fine homes left from prior to these changes, but there are many many more crap homes that are gone because they weren’t capable of lasting. These are the homes you should be comparing to the average home built today.
In many cases perfectly salvageable homes were demolished to make room for new stuff. Don't forget about those.
>I am certainly not an expert on housing but my father was professionally and I did help my grandfather add an addition to our family farm house that was from the 1910s, when it was literally 1 room without plumbing (they’d done a previous remodel in the 60s to add bedrooms and plumbing, the materials from that remodel were not significantly different than the materials we used in the 90s).
There is a high degree of variance in the quality of old construction, I have to admit. But from what I've seen, prior to the 70s (and maybe even later) even simple homes were built with materials that would be considered premium today. Hardwood floors, solid wood walls, tongue-in-groove planks everywhere. If it's a brick house, it's actual solid brick instead of a brick facade on cheap trash wood. Very rare to see drywall or plywood, or the other flimsy materials people use now. Even old plywood is premium compared to the new composite crap all glued together.
I’d respectfully suggest you go look at the forest lab reports before just dismissing them. Literally, it’s public domain, we spent tons of money on the research and your vibes about how the lumber looks compared to the structural tests they ran might not hold up.
The “simple” homes you’ve seen that have tongue in groove planks or solid wood floors were the exception in housing. It was literally the very good stuff. Most housing prior to ww2 had dirt floors! Post ww2 it was concrete slab. Solid brick housing was a huge luxury item. Most housing in the US was wood plank.
In cities solid brick apartment buildings were more common prior to ww2, but they’d have aesthetic brick in the front and “common” brick on the sides. Interior walls would just be the exterior wall. Dry wall and insulation was effectively unheard of.
>On that note, houses are unquestionably more valuable today.
No. They are better, not necessarily more valuable.
Simple example:
Today you can get a phone with a chip more powerful than the best supercomputers 50 years ago. Is today's chip more valuable (ie. price-value) than that supercomputer? No. An equivalent supercomputer back then would cost WAY more. You're bringing other variables into play and confusing things. Technology has improved, manufacturing costs have gone WAY down for higher quality products. The fact that we can get higher quality things nowadays has little to do with purchasing power and everything to do with science and technology. The fact we can afford a better quality house nowadays, is also much more related to material improvements, manufacturing, logistics, overall system efficiency (transportation, company competition,...) improvements than purchasing power.
What we can compare is what other poster's are doing: time vs functions. For example, working time needed to have an average place to live in by the time's standards. And if you do that, you'll see today it requires A LOT more working time.
With inflation, we want to know about the change in value of the dollar only. We don't want to factor in the change in value of houses, food, etc. There is a place for understanding that too, but inflation is not it. Something like a cost of living index is more suitable to that kind of information.
On that note, houses are unquestionably more valuable today. For one, they are twice the size they were 60 years ago. We can all agree that a bigger house has more value than a small house, at least within reason. You can fit more in it, it is more comfortable, etc. and that is valuable. They are also a lot safer. That too is more valuable.
As such, a housing costing x% more today than as compared to some time in the past does not mean that inflation is x%. Again, we only want to know about how the dollar changed in value, not housing. Of course, if you only have numbers, it is impossible to know what share is due to housing being more valuable and what share is the dollar being less valuable, although we can say with great certainty that it is some combination of both.
CPI tries to tess out what is the dollar portion only by looking at a large basket of goods of things people buy frequently. Where you see common moment in the change in price across all items in the basket, that is assumed to be the change in value of the dollar. It's not perfect. There is no perfect metric. You are quite right that one should look at many different models, even though none of them will be perfect either. It is all good information, none of it great, but at some point you have to pick a single number.
On average, it will be close enough.