(Roughly) Daily

Posts Tagged ‘inflation

“He, indeed, who gave fewest pledges to Fortune, has yet suffered her heaviest visitations”*…

As Zachary Crockett explains, taking the kids to a baseball game, a movie, or Disneyland is a bigger financial commitment than it used to be for middle-class families… a much bigger commitment…

In the 1950s and ’60s — the so-called Golden Age of American capitalism — family outings were within the realm of affordability for most median income earners. Many blue-collar workers could afford new homes and cars and still take their kids to Disneyland.

Despite rising wages, many of those same activities are now out of reach for everyday Americans.

The Hustle analyzed the cost of three family activities in 1960 vs. 2022:

1. A baseball game

2. A movie at a theater

3. A one-day Disneyland visit

We found that these family outings have increased in cost at 2-3x the rate of inflation — and that, in order to afford them, today’s American families have to work up to 2x as many hours as they did 60 years ago…

The painful details at: “America’s favorite family outings are increasingly out of reach,” from @zzcrockett in @TheHustle.

* John Maynard Keynes

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As we rethink our plans, we might recall that it was on this date in 1951 that Disney’s Alice in Wonderland had its American premiere (in New York, two days after premiering in London). The average price of a movie ticket that year was $0.47 (or $4.53, adjusted for inflation); popcorn was 5-10 cents per bag.

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Written by (Roughly) Daily

July 28, 2022 at 1:00 am

“It’s a recession when your neighbor loses his job; it’s a depression when you lose your own”*…

The “R word,” unpacked…

It’s being whispered and murmured about. The president is facing questions about it. Business leaders and investors are already bracing for it. The specter of recession is once again rearing its monstrous head.

It’s feasible that the economy could chug along without any bumps or crashes. But boom-and-bust cycles remain a seemingly inescapable feature of capitalist economies. Some countries have done well avoiding busts. Starting in 1991, Australia had a run of almost 29 years without a recession, the longest stretch of economic growth of any nation in modern history. That ended in 2020, when the pandemic led to a big contraction — and Australia (briefly) succumbed to the beast.

While Australia had zero recessions between 1991 and 2020, the United States had two, a mild one in 2001, amid the dotcom crash and the 9/11 terrorist attacks; and a catastrophic one known as the Great Recession, between 2007 and 2009. Since 1854, the first year for which we have official economic data, the United States has experienced 35 recessions.

The National Bureau of Economic Research’s Business Cycle Dating Committee is the official body that keeps track of recessions in the U.S. The committee has traditionally defined recessions as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”…

Recessions– what they are, what they aren’t, and how they happen: “Fear The Vibe Shift: Are We Entering A Recession?,” from Greg Rosalsky (@elliswonk) at Planet Money (@planetmoney).

And for a dive into the vibe in question, see Derek Thompson‘s (@DKThomp) examination of why many Americans believe that they’re personally doing well, even as they feel that the country and the economy are going to hell: “Everything Is Terrible, but I’m Fine.”

See also: “There are 2 very different kinds of recessions—and the U.S. is likely headed for something totally different than 2008” in @FortuneMagazine (source of the image above), and “A recession in America by 2024 looks likely– It should be mild—but fear its consequences” in @TheEconomist.

* Harry S. Truman

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As we batten the hatches, we might send carefully-considered birthday greetings to Robert Aumann; he was born on this date in 1930. An economist and mathematician, he is best known for his contributions to game theory, especially for his work on repeated games (situations in which players encounter the same situation over and over again). He developed the concept of correlated equilibrium in game theory, which is a type of equilibrium in non-cooperative games (like most of those in our economy), a more flexible version than the classical Nash equilibrium.

For these and related contributions to game theory, he shared the 2005 Nobel Prize in Economics.

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“The basic underlying problem does not entail misbehavior or incompetence but rather stems from the nature of the provision of labor-intensive services”*…

Agatha Christie with her daughter Rosalind in 1924 [source]

Why is it that stuff– clothing, electronics, toys– keep getting cheaper, while services– healthcare, education, child care– continue to rise on price?

Agatha Christie’s autobiography, published posthumously in 1977, provides a fascinating window into the economic life of middle-class Britons a century ago. The year was 1919, the Great War had just ended, and Christie’s husband Archie had just been demobilized as an officer in the British military.

The couple’s annual income was around around £700 ($50,000 in today’s dollars)—£500 ($36,000) from his salary and another £200 ($14,000) in passive income.

hey rented a fourth-floor walk-up apartment in London with four bedrooms, two sitting rooms, and a “nice outlook on green.” The rent was £90 for a year ($530 per month in today’s dollars). To keep it tidy, they hired a live-in maid for £36 ($2,600) per year, which Christie described as “an enormous sum in those days.”

The couple was expecting their first child, a girl, and they hired a nurse to look after her. Still, Christie didn’t consider herself wealthy.

“Looking back, it seems to me extraordinary that we should have contemplated having both a nurse and a servant,” Christie wrote. “But they were considered essentials of life in those days, and were the last things we would have thought of dispensing with. To have committed the extravagance of a car, for instance, would never have entered our minds. Only the rich had cars.”…

By modern standards, these numbers seem totally out of whack. An American family today with a household income of $50,000 might have one or even two cars. But they definitely wouldn’t have a live-in maid or nanny. Even if it were legal today to offer someone a job that paid $2,600 per year, nobody would take it.

The price shifts Christie observed during her lifetime continued to widen after her death…

As you can see, cars aren’t the only things that get cheaper over time. In the last 30 years, clothing, children’s toys, and televisions have all gotten steadily cheaper as well—as have lots of other products not on the chart.

It’s one of the most important economic mysteries of the modern world. While the material things in life are cheaper than ever, labor-intensive services are getting more and more expensive. Middle-class Americans today have little trouble affording a car, but they struggle to afford a spot in day care. Only the rich have nannies.

Who is to blame? Some paint the government as the villain, blaming excessive regulations and poorly targeted subsidies. They aren’t entirely wrong. But the main cause is something more fundamental—and not actually sinister at all.

Back in the 1960s, the economist William Baumol observed that it took exactly as much labor to play a string quartet in 1965 as it did in 1865—in economics jargon, violinists hadn’t gotten any more productive. Yet the wages of a professional violinist in 1965 were a lot higher than in 1865.

The basic reason for this is that workers in other industries were getting more productive, and that gave musicians bargaining power. If an orchestra didn’t pay musicians in line with economy-wide norms, it would constantly lose talent as its musicians decided to become plumbers or accountants instead. So over time, the incomes of professional musicians have risen.

Today economists call this phenomenon “Baumol’s cost disease,” and they see it as one of the most important forces driving the price trends in my chart above. I think it’s unfortunate that this bit of economics jargon is framed in negative terms. From my perspective as a parent, it might be a bummer that child care costs are rising. But my daughter’s nanny probably doesn’t see it that way—the Baumol effect means her income goes up…

A thoughtful consideration of a counterintuitive phenomenon: “Why Agatha Christie could afford a maid and a nanny but not a car,” from Timothy B. Lee (@binarybits) in Full Stack Economics (@fullstackecon).

From Baumol himself…

Briefly, the book’s central arguments are these:

1. Rapid productivity growth in the modern economy has led to cost trends that divide its output into two sectors, which I call “the stagnant sector” and “the progressive sector.” In this book, productivity growth is defined as a labor-saving change in a production process so that the output supplied by an hour of labor increases, presumably significantly (Chapter 2).

2. Over time, the goods and services supplied by the stagnant sector will grow increasingly unaffordable relative to those supplied by the progressive sector. The rapidly increasing cost of a hospital stay and rising college tuition fees are prime examples of persistently rising costs in two key stagnant-sector services, health care and education (Chapters 2 and 3).

3. Despite their ever increasing costs, stagnant-sector services will never become unaffordable to society. This is because the economy’s constantly growing productivity simultaneously increases the community’s overall purchasing power and makes for ever improving overall living standards (Chapter 4).

4. The other side of the coin is the increasing affordability and the declining relative costs of the products of the progressive sector, including some products we may wish were less affordable and therefore less prevalent, such as weapons of all kinds, automobiles, and other mass-manufactured products that contribute to environmental pollution (Chapter 5).

5. The declining affordability of stagnant-sector products makes them politically contentious and a source of disquiet for average citizens. But paradoxically, it is the developments in the progressive sector that pose the greater threat to the general welfare by stimulating such threatening problems as terrorism and climate change. This book will argue that some of the gravest threats to humanity’s future stem from the falling costs of these products, rather than from the rising costs of services like health care and education (Chapter 5).

The central purpose of this book is to explain why the costs of some labor-intensive services—notably health care and education—increase at persistently above-average rates. As long as productivity continues to increase, these cost increases will persist. But even more important, as the economist Joan Robinson rightly pointed out so many years ago, as productivity grows, so too will our ability to pay for all of these ever more expensive services.

William J. Baumol, from the Introduction to The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t

* William J. Baumol

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As we interrogate inflation, we might recall that it was in this date in 1933 that United Artists released the animated short “Three Little Pigs,” part of the Silly Symphonies series produced by Walt Disney (though some film historians give the date as May 25). A hit, it won the Academy Award for Best Animated Short Film. In 1994 a poll of 1,000 animators voted it #11 of the 50 Greatest Cartoons of all time.

Its song, “Who’s Afraid of the Big Bad Wolf,” written by Frank Churchill, was a huge hit and was often used as an anthem during the Great Depression.

“When I give food to the poor, they call me a saint. When I ask why the poor have no food, they call me a communist.”*…

Staying yesterday’s agribusiness theme: George Monbiot on the extraordinary challenges facing the world’s food system…

For the past few years, scientists have been frantically sounding an alarm that governments refuse to hear: the global food system is beginning to look like the global financial system in the run-up to 2008.

While financial collapse would have been devastating to human welfare, food system collapse doesn’t bear thinking about. Yet the evidence that something is going badly wrong has been escalating rapidly. The current surge in food prices looks like the latest sign of systemic instability.

Many people assume that the food crisis was caused by a combination of the pandemic and the invasion of Ukraine. While these are important factors, they aggravate an underlying problem. For years, it looked as if hunger was heading for extinction. The number of undernourished people fell from 811 million in 2005 to 607 million in 2014. But in 2015, the trend began to turn. Hunger has been rising ever since: to 650 million in 2019, and back to 811 million in 2020. This year is likely to be much worse.

Now brace yourself for the really bad news: this has happened at a time of great abundance. Global food production has been rising steadily for more than half a century, comfortably beating population growth. Last year, the global wheat harvest was bigger than ever. Astoundingly, the number of undernourished people began to rise just as world food prices began to fall. In 2014, when fewer people were hungry than at any time since, the global food price index stood at 115 points. In 2015, it fell to 93, and remained below 100 until 2021.

Only in the past two years has it surged. The rise in food prices is now a major driver of inflation, which reached 9% in the UK last month. [Current estimates are that it will be 9% in the U.S. as well.] Food is becoming unaffordable even to many people in rich nations. The impact in poorer countries is much worse.

So what has been going on?…

Spoiler alert: massive food producers hold too much power – and regulators scarcely understand what is happening. Sound familiar? “The banks collapsed in 2008 – and our food system is about to do the same,” from @GeorgeMonbiot in @guardian. Eminently worth reading in full.

Then iris out and consider how agricultural land is used: “Half of the world’s habitable land is used for agriculture.”

… and consider the balance between agriculture aimed at producing food directly and agriculture aimed at producing feed and fuel: “Redefining agricultural yields: from tonnes to people nourished per hectare.”

Hélder Câmara

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As we secure sustenance, we might send carefully-observed birthday greetings to Dorothea Lange; she was born on this date in 1885. A photographer and photojournalist, she is best known for her Depression-era work for the Farm Security Administration (FSA). Lange’s photographs influenced the development of documentary photography and humanized the consequences of the Great Depression.

Lange’s iconic 1936 photograph of Florence Owens Thompson, Migrant Mother [source]
Lange in 1936 [source]

“Inequality is as dear to the American heart as liberty itself”*…

And indeed, what was true a century ago seem still to hold. Everyone seems to hate/fear inflation, but it has radically different impacts on different groups within our society…

Inflation is widening America’s wealth gap.

• Prices have risen across the nation, and so have wages across all income levels.

• The lowest-earning households gained an average of $500 in earnings last year. But their expenses grew by almost $2,000.

• Meanwhile, the upper half of earners pulled further ahead as their incomes outgrew expenses significantly.

Whom does inflation hurt the most?” from Scott Galloway (@profgalloway)

William Dean Howells

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As we ferret out unfairness, we might cautious birthday greetings to James Mill; he was born (James Milne) on this date in 1773. A historian, economist, political theorist, and philosopher (a close ally of Utilitarian thinker Jeremy Bentham), he is counted among the founders of the Ricardian school of economics (and so, among other things, a father of monetarism, the theory that excess currency leads to inflation).

His son, John Stuart Mill, studied with both Bentham and his father, then became one of most influential thinkers in the history of classical liberalism (perhaps especially his definition of liberty as justifying the freedom of the individual in opposition to unlimited state and social control). JSM also followed his father in justifying colonialism on Utilitarian lines, and served as a colonial administrator at the East India Company.

James Mill

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