Far be it from me to carry water for the Biden Administration or to downplay the impact of inflation on working families as White House officials did in June when they dismissed rising prices as merely “transitory.” When 87% of Americans say they are very or extremely worried about higher prices, and one out of ten people say they can’t afford to buy holiday gifts this year, it’s a serious issue.
Still, you can see why ruling elites are a little mystified by the collective freak-out, and it’s not just because they’re rich so they don’t care (although that’s true).
Truth is, nothing new is happening.
Real inflation has been soaring for four decades. What changed is the artificially-deflated official inflation rate. Which is why people are finally paying attention.
Presidential administrations have repeatedly changed the methodology the Bureau of Labor Statistics uses to calculate the U.S. inflation rate. Why? Politics, of course. The government wants to fool voters into thinking that they are better off, or at least thinking that they aren’t losing ground as quickly as they actually are. Lowballing price increases also saves the Treasury money on big costs like Social Security payouts, which are tied to the official inflation rate.
Housing, food and fuel account for a significant share of typical household expenses, but because they have been rising steadily in price for years, the feds keep lying about how much people really spend on those items. They’ve also factored in “shadow inflation”—the relative cost from year to year of, for example, a phone, is discounted going forward because an iPhone is of higher-quality, with more features, than Ma Bell’s “old reliables.” In reality, of course, you need a standard phone—which, today, is a smartphone. It’s not like you can time-travel back to 1980 to buy a rotary dial. So the BLS doesn’t count a $1000 iPhone as a significant price hike over a $20 plug-in model.
John Williams’ Shadow Government Statistics presents inflation the old-fashioned way, as it was calculated in 1980. The difference is significant, often as much as 10% per year. In September, for example, Forbes reported that the BLS announced the official inflation rate to be 5.4%. But the “real” inflation rate was 13.4%.
According to the official inflation rate, an item that cost $100 in 1980 now costs $336. Because inflation—official inflation—ticked up a few percentage points each year, it has not been a major political issue over the last 40 years.
No one was paying attention to the truth: inflation has been destroying living standards for many years. According to Shadow Government Statistics, due to exponential calculations that $100 item in 1980 now costs about $2,200. But median family income has stagnated; a $100 paycheck in 1980 is now a $335 paycheck, almost exactly the official inflation rate. Wages haven’t come close to keeping up, except for the top 1%. They’re doing great.
Median monthly rent has skyrocketed from $243 in 1980 to $1098 this year; median house-purchase price rose from $47,200 to $382,000. Gas was $1.19 per gallon; now it’s $3.41. College tuition, room and board was $3,900 and is currently $35,720.
So inflation is an ongoing problem. The only thing that’s new is that we are noticing it because it’s being reported. Although, it’s important to note, the inflation rate that is tanking Biden’s poll numbers is still being radically downplayed.
Because the rate is now high enough to register officially, Joe Biden is the first president since Jimmy Carter to be blamed for inflation. Reagan, both Bushes, Clinton, Obama and Trump had high inflation too—but they got off scot-free.
“There is a psychology to inflation that is different from everything else, and it tends to drive how people view the economy because they experience it every day whether it is at the grocery store, gas pump or buying household goods,” says Democratic pollster John Anzalone. As the last 40 years prove, though, the government is also very good at convincing people not to believe their own lying eyes.
(Ted Rall (Twitter: @tedrall), the political cartoonist, columnist and graphic novelist, is the author of a new graphic novel about a journalist gone bad, “The Stringer.” Order one today. You can support Ted’s hard-hitting political cartoons and columns and see his work first by sponsoring his work on Patreon.)
6 Comments.
I think (that is, I think I think) you left out one thing.
Take that smartphone as an example. Because wages haven’t kept up (and because a lot more jobs have gone to the twice-a-month pay schedule) there is tremendous pressure (real and psychological) to use a credit card rather than cash. If I’m 13 days out from my next paycheck, I will not want to hand over cash for a large transaction for fear I may need it for an even larger emergency. So the groceries go on the credit card. The new phone goes on a credit card. Etc. That ends up compounding my problems (in both senses) in that I am now paying EVEN MORE for that phone, those groceries, etc., unless I pay that card off right away.
How does the carousel of credit card usage (i.e., stealing from Peter to pay Paul) impact the inflationary rate?
I use per capita gross domestic product as an index instead of those inflation indices. The GDP measures the total amount that we collectively create each year and those products and services all accrue to someone. It is not evenly distributed by any means but the average per person — the per capita GDP — does reflect how much the average person benefits each year. Per capita GDP was $12,575 in 1980 and in 2020 it was $63,544, which is 5 times the size. If my income is does not reach 5 times what it was in 1980 then my share of the pie is shrinking.
Well, I’ll go for 1985 since that’s when I graduated college and moved in with my wife (then my girlfriend). Our first year out I had a job programming computers, and she was in grad school. I made around 25K. We lived fine, had a nice apartment in New York City, got take out regularly, went to visit her parents in Vermont all the time. Nothing fancy but we lived fine. Official inflation since then would say things cost 2.5 times as much. So imagine 2 people trying to live in NYC on 62.5K. Ha ha. Just rent would take up more than half of that. I mean forget about take out, you wouldn’t have money for groceries. We had a car in the city, double ha ha.
@suetonius17 I am getting per capita GDP from https://www.macrotrends.net/countries/USA/united-states/gdp-per-capita. For 2020, it is at 3.5 times the size that it was in 1985. So that $25K in 1985 would be $87K in 2020 by this approach. Maybe that extra $25K over $62.5K would get you take out regularly and a car.
That’s I guess Ted’s point. The inflation figures don’t match reality. Your salary could have been increasing with inflation and you would still be losing significant ground. Oh, and the GDP is a bit skewed because the pandemic dropped it for last year, realistically its more like 5.5 times for 1980 and 3.7 for 1985.
US Nominal GDP Per Capita data going all the way back to 1790 is available for the United States at https://www.measuringworth.com/datasets/usgdp/. When you read an old book or see an old movie that mentions money, you can convert the amount to today’s comparable wealth via that chart.
N.B. Don’t compute this for the minimum wage unless you want to get depressed.