An NBER paper earlier this year written by economists at the IMF and Harvard, including Democrat Larry Summers, goes a long way towards explaining why Americans thought inflation was worse than the headline number. You can download the paper here.
https://www.nber.org/papers/w32163
Or read a summary here.
https://www.forbes.com/sites/theapot...vious-formula/
If you look at the official numbers, the median American wage earner saw prices increase about 1/2 of 1% more than wages during the Biden administration. Compare to the Trump administration, when wages rose by almost 7% more than prices. Those are wages before tax. After income tax, median real wages were up more than 7%, because of the Trump/Ryan/McConnell tax cuts for the middle class.
But the official numbers don't take into account the increase in interest payments borne by Americans, manifested in higher house, car and credit card payments and the like. The consumer price index, the way it was calculated prior to 1983, did take that into account. What Summers and the rest did in the NBER study was go back and calculate CPI using the pre-1983 method. And then they compared it to consumer sentiment.
Using the old methodology, which includes interest expense borne by consumers, inflation peaked at 18% in November, 2022! And if you look at consumer sentiment, it tracks the Summers et al CPI a lot better than the current CPI.
In other words, the workingman was way behind the eight ball. When you include higher interest costs he had to bear, he lost purchasing power. And that's a good part of the reason Biden got poor numbers for economic policy in surveys.
- Tiny
- Yesterday, 10:34 PM
- lustylad
- Today, 12:09 AM
Thanks, tiny.
Hard to believe that under the old CPI, Biden's inflation would have been TWICE as high, peaking in 2022 at 18% rather than 9%. Wtf - that's even higher than Jimmy Carter's peak of 14-15% back in 1980, when we were still calculating inflation using the old methodology.
I think another reason it took so long for Biden's inflation shock to dissipate is because of the lag for wages to catch up. Workers lost a lot of purchasing power in Biden's first 2 years, and have been clawing it back very slowly since then.
Hard to believe that under the old CPI, Biden's inflation would have been TWICE as high, peaking in 2022 at 18% rather than 9%. Wtf - that's even higher than Jimmy Carter's peak of 14-15% back in 1980, when we were still calculating inflation using the old methodology.
I think another reason it took so long for Biden's inflation shock to dissipate is because of the lag for wages to catch up. Workers lost a lot of purchasing power in Biden's first 2 years, and have been clawing it back very slowly since then.