Inflation Inequality

There's our alarming income inequality. There's the even more dangerous wealth inequality.

And then there's the almost totally hidden inflation inequality, which until now wasn't even acknowledged.

In an era of wild inequality, sputtering wages, and rising rents and health-care costs, the American working class has had one consistent financial respite: “stuff,” broadly defined, is cheap. Sure, workers might not be able to afford a decent apartment, a college education, or sufficient elder care for an infirm relative, or to ever, ever get sick. But burgers, leggings, yard tools, bicycles, dishes, smartphones, soda—these items have become less expensive, thanks to big-box stores and internet retailers and imports from abroad.

Or perhaps not. A new analysis from a prominent group of economic researchers suggests not only that rising prices have been quietly taxing low-income families more heavily than rich ones, but also that, after accounting for that trend, the American poverty rate is significantly higher than the official measures suggest. Call it “inflation inequality,” a subtle, pernicious way that the fortunes of the rich and the poor have diverged.

When the Xavier Jaravel of the London School of Economics looked at the prices of the products purchased by the bottom income quintile and compared them to the prices of the products purchased by the top income quintile they found that poor families experienced an annual rate of inflation of 0.44 percentage points higher than that of wealthy families.

Now that doesn't sound like much, but in fact the impact is enormous.

Accounting for differential changes in prices would bump up the 2018 poverty rate by 8 percent—adding 3.2 million people to the ranks of the officially poor, and 836,000 people to the ranks of those in deep poverty. According to standard government measures, the real household income of the bottom quintile fell 1 percent from 2004 to 2018; using the new, inflation-sensitive accounting, it fell more than 7 percent.

If you ever heard a economist tell you that "there is no inflation", and you thought "in a pig's eye", well, it turns out that you were right.

You might be thinking "Who will speak out for the poor billionaires?"
Jim Cramer has bravely come to their defense.

“Income inequality is a real problem in this country … but the problem is not CEO pay. I think it might be everybody else’s pay,” Cramer said.

Right. We can't stop the CEOs from robbing their workers blind. That would upset the status quo.

“The way I see it, you need to look at CEOs like they’re great athletes. Any major bank in the world would happily top Jamie’s pay package if they thought they could lure him away,” the “Mad Money” host said,

Yeh, because we live in a meritocracy where everyone is paid according to their worth.
Except that this is utter bulsh*t.

Income inequality in the United States would fall drastically if people were compensated based only on their ability.

The fundamental reason that income inequality is extraordinarily high in the United States relative to other democracies is the disparities in power across groups.

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karl pearson's picture

Any major bank in the world would happily top Jamie’s pay package if they thought they could lure him away,” the “Mad Money” host said,

Maybe one of these major banks would like to plead guilty to 3 felony counts after they hire Dimon to be their new CEO.

What gave the trial lawyers the idea that Jamie Dimon might be running a criminal institution? For starters, it is the only U.S. bank in history to have pleaded guilty to three criminal felony counts and kept the same man, Dimon, as its CEO despite the unprecedented criminal charges.

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18 users have voted.

@karl pearson

The book In Search of Excessive show how exactly Board of Directors use compensation tricks for setting executive pay. And this book is almost 30 years old.

In Search of Excess: The Overcompensation of American Executive

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8 users have voted.

In fairness Liz Warren said almost exactly that in 2005 (search Youtube, "Warren Jefferson lectures")Essentially she took government statistics and compared prices from 1970 to 2005. Consumer goods - clothing, cars, washing machines, were all cheaper "today"... but...
Take cars for an example. Cars are cheaper, a lot cheaper. But car insurance isn't, and thanks to lower effective wages requiring 2 job families needing 2 cars the real costs are higher. Billionaires have to pay higher housing costs and health care as well, but with their income they don't care, but the rest of us do. The real difference between 1970 and today is that there are more things that are "necessary" and those things are a lot more expensive in reality.

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16 users have voted.

A PROUD Hillary hater since 1993

thanatokephaloides's picture

@doh1304

Take cars for an example. Cars are cheaper, a lot cheaper.

Umm, no, they're not. Not even adjusted for inflation. $25,000 was a year's income for me when I was working. And that's cheap for a new car. My parents' generation, in their prime, spent about four months' gross income on a new car. In fact, replacement cost is a significant reason why:

car insurance isn't,

Not to mention movement of auto insurance from the casualty basis to the liability basis it operates under today, requiring that auto insurance be made mandatory.

All these things are more expensive now (in constant money) than they were in 1970.

Additional evidence:

thanks to lower effective wages requiring 2 job families needing 2 cars the real costs are higher.

All of which adds up to:

Billionaires have to pay higher housing costs and health care as well, but with their income they don't care, but the rest of us do. The real difference between 1970 and today is that there are more things that are "necessary" and those things are a lot more expensive in reality.

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4 users have voted.

"I say enough! If Israel wants to be the only superpower in the Middle East then they can put their own asses on the line and do it themselves. I want to continue to eat."
-- snoopydawg

@thanatokephaloides
But then I made some calculations. A car cost about four month's pay then (based on my father's income. He was a construction laborer)A $20k car today compared to my father's income adjusted for inflation is closer to 6 month's income, but then Warren got her figures from government statistics, and we all know that government statistics under estimate inflation, especially for items considered "necessary" - that's the whole point of the article. And then there's wage erosion.

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5 users have voted.

A PROUD Hillary hater since 1993

@doh1304
on the other hand, and significantly, I believe (don't know for sure) that repairs have gotten more expensive (parts in particular) -- which again affects lower-income people disproportionately, since they're most likely to be driving cars that need replacement parts.

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2 users have voted.

The earth is a multibillion-year-old sphere.
The Nazis killed millions of Jews.
On 9/11/01 a Boeing 757 (AA77) flew into the Pentagon.
AGCC is happening.
If you cannot accept these facts, I cannot fake an interest in any of your opinions.

Hawkfish's picture

@UntimelyRippd

They are much simpler and have correspondingly lower maintenance costs. Projections are that the price crossover is about two years out.

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1 user has voted.

We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

@Hawkfish
of course, now that the forces of evil have successfully heisted Bolivia's lithium on our behalf, we should be in clover.

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1 user has voted.

The earth is a multibillion-year-old sphere.
The Nazis killed millions of Jews.
On 9/11/01 a Boeing 757 (AA77) flew into the Pentagon.
AGCC is happening.
If you cannot accept these facts, I cannot fake an interest in any of your opinions.

@doh1304 They are cheaper in more ways than one. Most everything made now is garbage, at least the affordable goods anyway. Nothing is made to last anymore its all throw away after a few years. When I was a kid in the 60s and 70s there were mom and pop repair shops everywhere from TVs to Vacuums now not so much.

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9 users have voted.

@pro left
My 10 year old iMac is only being replaced because the OS cannot keep up with internet security. I still use it as a word processor. I have a friend who owns a 2001 Saturn. She just had to replace the original spark plugs. But things were indeed repairable then and if you were buying cheap, low quality crap then you knew it and probably had options.

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4 users have voted.

A PROUD Hillary hater since 1993

shareholders :

Any major bank in the world would happily top Jamie’s pay package if they thought they could lure him away,” the “Mad Money” host said,

I don't believe for 1 second that the absurd pay levels have anything to do with merit or skills or capabilities. I could however believe that Dimon and other CEOs have dirt on the corporate directors or know where the bodies are buried. But I will never believe that he, or any of them, do anything that couldn't be done by 500 other people at 1/10th the cost.

Free market my ass.

From what I can tell Jim Cramer's job is to come to the rescue of billionaires.

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14 users have voted.
ggersh's picture

add to the list gulianni/bloomberg/ross/WS/etc.etc.
connecting the dots is easy, greed flows in the NYC
water.

Regarding inflation, growing up only my father was
needed to support a family of 5, starting in the 90's
the wife started needing to go to work to keep that
same standard of living, since the 00's one decent job
was needed for a single person to maintain a fairly
nice standard of living, today it take's 3 jobs or bust for
a millennial to maintain a standard of living equal to
or

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13 users have voted.

trump will be amerika's last president

What if the impeachment of tRumpolini is meant
to destroy the D party, makes sense doesn't it?

elections = tptb excuse for sayin ameriKa is a
democracy

University degrees, housing, health care are all more expensive in real terms. Far more expensive than they were in the 1970s. In addition, employer provided pensions are now a thing of the past, as is job security. Measured by an index of social security and mobility, quality of life in America for all but the top five to ten percent is far lower than it was half a century ago. And, if we don't like it, there's less we can do about through electoral politics, as both parties and the regulatory agencies are now complete captives of multinationals and the One Percent.

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15 users have voted.

Which is likely made up of the CEOs of other corporations.
On whose boards Dimon sits.
And thus, whose salaries Dimon sets.

Or some suchlike. It doesn't have to be a single degree of separation. What matters is that almost everyone on every Fortune 500 board has a vested interest in inflating executive compensation.

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9 users have voted.

The earth is a multibillion-year-old sphere.
The Nazis killed millions of Jews.
On 9/11/01 a Boeing 757 (AA77) flew into the Pentagon.
AGCC is happening.
If you cannot accept these facts, I cannot fake an interest in any of your opinions.

thanatokephaloides's picture

@UntimelyRippd

Dimon's salary is set by the Board.
Which is likely made up of the CEOs of other corporations.
On whose boards Dimon sits.
And thus, whose salaries Dimon sets.

And the wheel goes round and round....

... bound to cover just a little more ground ....

Wink

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4 users have voted.

"I say enough! If Israel wants to be the only superpower in the Middle East then they can put their own asses on the line and do it themselves. I want to continue to eat."
-- snoopydawg