Deflating the underclass.
Over the last week, one of the Fray's finest conversations has been on slow burn in our Undercover Economist Fray. Readers responded to Tim Harford's article on the historical puzzler of our measured rate of inflation with a wealth of thoughtful and informative posts.
Looking at the abundant larder of Peter Bruegel's "Peasant Wedding," Harford observes that our distant ancestors had far more to eat than the half ounce of daily potato a modern economist would extrapolate from a backward projection of the inflation rate. Poster GCaldwell points out that a sixteenth century peasant wasn't necessarily a prole:
Although we now use "peasants" to refer to very poor persons, the term originally referred simply to commoners living in the country. Since, unlike nobles, they could work for a living, they could become wealthy as a result of their labors. Don Quixote, published in the early seventeenth century, begins with a picture of our nobleman hero living in relative poverty, and in Chapter 20 of Part I, he and Sancho attend an opulent wedding feast put on by a peasant called Camacho the Rich.
Though Harford's article might conflate caste with class, the daily diet of a Dickensian workhouse backs up his claim that the poor had more to eat than we'd otherwise suppose. destor23 finds something suspicious about the entire argument:
While economists might think we're overestimating inflation, I think that people living and working in the contemporary American economy would probably differ with them on the point. Wage growth in America has been horrible for decades now and it's been especially bad during the last five or so years. We've got record low unemployment but still not tightness in the labor market that is driving wages higher. The notion that we're richer than we think seems like a bit of trickery that doesn't jive with the real world.
The award for Best Commentary goes to Arkady's anecdotal assessment of the inflation rate's overbreadth:
The inflation rate differs greatly by socio-economic class, and the government makes no attempt to consider this. Coming up with a consumer price index means selecting a "basket of goods" and tracking what happens to the cost of buying that basket over time. But the obvious question is WHOSE basket do you work with. The basket of the average consumer will differ from that of the median consumer, and the basket of someone at the 10th percentile will differ greatly from the basket of someone at the 90th.
I can't recommend strongly enough that you read the whole post, but I'm recommending it with all of my might. portorchardkid adds to the point with an admirably economical survey of his own economic indicators:
I recall a British saying about gin; Something like, "drunk for a penny, dead drunk for tupney." With the price of a good martini around $5.00 nowadays, THAT'S inflation.
Other informative posts of note include Degsme's lucid explanation of marginal utility and Gingham_Dog's discussion of productive innovation.
Arguing for more than an academic exercise, Shrieking_Violet issues a call for political action:
The real issue isn't inflation, it's the way changes in the relative value of our wants and needs are slowly turning the fundamental elements of middle class life-- home ownership, adequate health care, financial security, and a college education-- into luxuries, while items that would once have been unfathomable luxuries become inexpensive and commonplace.
This is the natural outgrowth of the political and economic changes over the past 25 years, which have nearly all been calibrated to systematically hold down wages and reward investment earnings. It has created a fabulous amount of wealth and luxury, and some of this has trickled down to the bottom half of the economy, but there's a distinct air of Roman decadence to this arrangement-- wealth and security for the patricians, bread and circuses for the masses.
If you look only at unemployment, inflation, and the affordability of both basic needs and luxury items, the economy has never been stronger. But the long-term trends are toward a bifurcated society of owners and debtors. […]
I don't have a magic wand to change this situation, but I respectfully suggest that after 25 years of holding down wages, flattening taxes, and rewarding investment income, it's high time we let the pendulum swing back the other way for a while.
Adam Christian is co-editor of the Fray.