Examining Inflation

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Hristo Botev
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Re: Examining Inflation

Post by Hristo Botev »

Bankai wrote:
Thu Feb 25, 2021 12:43 pm
Healthcare made great progress.
But health has deteriorated; and all because of this same "progress."
Alphaville wrote:
Thu Feb 25, 2021 12:50 pm
oh, i don't track inflation
But inflation is what we're talking about. This isn't a Luddite vs. Technophile discussion just for the hell of it; it's a discussion for how you examine inflation when like for like is so hard to do. Put another way, we can talk about how the price of a radio has gone up or down; but who even needs a radio when you've got a piano (or a guitar or mandolin or fiddle or whatever) and learning how to play it is just part of your education?

white belt
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Re: Examining Inflation

Post by white belt »

@Bankai

Look at any of the climate change discussions to understand why the world is going downhill. All of the "progress" since the industrial revolution has been us taking resources from future generations in order to grow our population exponentially to the point it can no longer be supported. No doubt there were great innovations, but I think what Jacob is getting it is that the value of these innovations have slowed down significantly in the past 50 years. And some of these "innovations" are net neutral or negative because digging a hole to fill it in is seen as economically productive.

I think another example in a previous thread is about if you compare the layout of say a streetcar suburb to the typical suburban sprawl common today. Or the fact that it's great I can drive to Walmart and buy any produce in any season, but it's come at the expense of being able to walk down to the local grocer/market to buy my local produce. And now I need to have a car, pay taxes to maintain endless concrete and asphalt infrastructure, etc.

In regards to the indoor plumbing discussion, I actually think the real benefit is what we've learned about sanitation and germ theory, rather than indoor plumbing. Consider I already pee in a bucket and if I didn't have a flush toilet I would just implement a compost toilet system (basically an outhouse), also that rain harvesting is relatively easy to implement. I mean indoor plumbing is cool, but now all of the nitrogen, feces, and potable water that would normally be returned to the local soil goes into local waterways and kills fish. So it's kinda like we fixed one problem but created 5 more problems. Extrapolate this to most technological innovations, hence why apples to apples inflation numbers are hard to determine across time periods.

Hristo Botev
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Re: Examining Inflation

Post by Hristo Botev »

white belt wrote:
Thu Feb 25, 2021 1:03 pm
In regards to the indoor plumbing discussion, I actually think the real benefit is what we've learned about sanitation and germ theory, rather than indoor plumbing.
That's a really interesting perspective. Question whether it's possible to get the "innovations" in knowledge without the innovations in wasteful and ultimately unnecessary technologies?

Qazwer
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Re: Examining Inflation

Post by Qazwer »

@HB inflation is a basket of goods to be bought - not what is bought - so you have a basket of healthcare (however defined) in inflation - in terms of health you have decisions how those goods are applied and how effective those goods are in reaching an outcome
Health outcomes are more impacted by the changes from a century ago (public health) but that is a different question than inflation
Last edited by Qazwer on Thu Feb 25, 2021 1:13 pm, edited 1 time in total.

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Alphaville
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Re: Examining Inflation

Post by Alphaville »

Hristo Botev wrote:
Thu Feb 25, 2021 12:54 pm
But inflation is what we're talking about. This isn't a Luddite vs. Technophile discussion just for the hell of it; it's a discussion for how you examine inflation when like for like is so hard to do. Put another way, we can talk about how the price of a radio has gone up or down; but who even needs a radio when you've got a piano (or a guitar or mandolin or fiddle or whatever) and learning how to play it is just part of your education?
actual inflation might be noncomputable, and we might be stuck with qualitative statements about individual baskets of goods and/or a look at historical standards of living.

in my preferred consumption areas (reading, music, film) prices have gone down significantly with technology and therefore my standard of living has improved.

and having lived in many places, i'm looking at this globally: regardless of what the numbers on the price tags say, global standards of living have gone up and global purchasing power has gone up. this currently puts pressure on resources, which is bad, but also creates demand for "greener" products, which is good. can we all be rich and make a low impact? that depends on what we value.

as for music: i have a great uncle who used to be an amateur musician: not only did he have the expensive radio furniture, and a piano player relic with the rolls still in it, he also had a guitar and other instruments and the drinking that went with all that. so it wasn't a trade off, it was just more.

and one person's education is abother person's hard partying. i try not to romanticize the past because i'm old enough to have lived in it.

Hristo Botev
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Re: Examining Inflation

Post by Hristo Botev »

@Qawzer: So is the right way to look at it just how much does the "average" person spend for some "average" basket of goods in a given year, and then compare that to whatever the average spend and average basket was the prior year, and so forth? Perhaps I should consult Wikipedia (though my dad's encyclopedia set would probably get me a more succinct answer!).

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Alphaville
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Re: Examining Inflation

Post by Alphaville »

Hristo Botev wrote:
Thu Feb 25, 2021 1:13 pm
(though my dad's encyclopedia set would probably get me a more succinct answer!).
don' t forget to buy the volume with the updated info on mmt ;)

white belt
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Re: Examining Inflation

Post by white belt »

Hristo Botev wrote:
Thu Feb 25, 2021 1:09 pm
That's a really interesting perspective. Question whether it's possible to get the "innovations" in knowledge without the innovations in wasteful and ultimately unnecessary technologies?
Perhaps this warrants a separate thread? I’m sure there are frameworks out there. ERE’s focus on developing skills and DIY over purchasing (technological) solutions could be seen as one such strategy. It may be the case that at some point certain technologies cross a threshold into useful (e.g. 3D printer?).
Last edited by white belt on Thu Feb 25, 2021 1:24 pm, edited 1 time in total.

Hristo Botev
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Re: Examining Inflation

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Wikipedia to the (my) rescue:
Inflation measures are often modified over time, either for the relative weight of goods in the basket, or in the way in which goods and services from the present are compared with goods and services from the past. Over time, adjustments are made to the type of goods and services selected to reflect changes in the sorts of goods and services purchased by 'typical consumers'. New products may be introduced, older products disappear, the quality of existing products may change, and consumer preferences can shift. Both the sorts of goods and services which are included in the "basket" and the weighted price used in inflation measures will be changed over time to keep pace with the changing marketplace.[citation needed] Different segments of the population may naturally consume different "baskets" of goods and services and may even experience different inflation rates. It is argued that companies have put more innovation into bringing down prices for wealthy families than for poor families.[41]
So . . . , we're back to the problem where most ERE folks (myself likely excluded) just aren't "typical consumers." So I suspect "personal" inflation and index inflation for ERE folks is likely to be drastically different. I also suspect that the ERE WL6+ life is largely inflation proof, in the same way it's largely untouched by supply chain disruptions and the like.

ETA: That second-to-last line makes me think it'd be pretty fascinating if some ambitious forum member put together an ERE inflation index, broken down by country and by region. E.g., cost of a 25 lb bag of rice; cost of a 5 gallon bucket to be used for any number of ERE-ish endeavors; cost ofa pressure cooker; naturally, cost of lentils!
Last edited by Hristo Botev on Thu Feb 25, 2021 1:29 pm, edited 1 time in total.

Qazwer
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Re: Examining Inflation

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https://www.bls.gov/cpi/factsheets/medical-care.htm

I was making some soapbox comments given personal thoughts and critiques but with the difficulty in having anything. They do a good job. I clearly have mixed feelings about CPI

Methodology in link above

Medical care methodology
The CE tracks consumer out-of-pocket spending on medical care, which is used to weight the medical care indexes. CE defines out-of-pocket medical spending as:

patient payments made directly to retail establishments for medical goods and services;
health insurance premiums paid for by the consumer, including Medicare Part B; and
health insurance premiums deducted from employee paychecks.

white belt
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Re: Examining Inflation

Post by white belt »

Hristo Botev wrote:
Thu Feb 25, 2021 1:23 pm
So . . . , we're back to the problem where most ERE folks (myself likely excluded) just aren't "typical consumers." So I suspect "personal" inflation and index inflation for ERE folks is likely to be drastically different.
Correct. There was discussion in the JAFI thread over whether using CPI is appropriate for an ERE individual. I think we ultimately settled on using it from a simplicity perspective. However, the reality is that for the typical ERE person, taxes, housing, healthcare, and groceries are likely the largest line item expenses and thus the most important to measure for inflation purposes.

Edit: This begs the question of what level of granularity is necessary. For the prototypical ERE person, price rises in legumes will be felt more than price rises in a typical SAD consumer basket of milk, beef, cheese, etc. Since an ERE individual doesn’t consume much, it may not be that difficult to create a personalized index, but it does get much more complicated when substitution and other forms of capital get involved.

Qazwer
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Re: Examining Inflation

Post by Qazwer »

Useful is a loaded wood - CPI never applies to any group - does it include Grey Pupoun mustard and Rolls Royce
But if you are looking at it from societal it is useful
Should I worry about increasing inflation? Does gold make sense as an inflation hedge? Am I getting paid fairly year to year? Do I care about stimulus ending the world? Why are stopping the stimulus (either way)? Etc

Expecting a universal measure of inflation to catch everything is impossible ( notice my flip flop)

JCD
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Re: Examining Inflation

Post by JCD »

So . . . , we're back to the problem where most ERE folks (myself likely excluded) just aren't "typical consumers." So I suspect "personal" inflation and index inflation for ERE folks is likely to be drastically different.
The biggest limitation to the basket approach is it doesn't even work within the ERE community. With some folks living on boats, in cars, in tents, paying rents, owning homes, living in "foreign" lands it is rather difficult to even capture elements of the basket. Heck this forum is made up of people from all corners of the globe using different currencies.

I think it is much easier to tackle the JAFI as it represents a single, unifying example in that everyone here knows Jacob and knows his story. Jacob's methods are public and Jacob himself is open to discussion on any implementation details. This is why I spent a little time examining the JAFI and what it implies. That being said, I don't know if building a JAFI basket is a useful effort. Instead I just wanted to understand the basic principles of why the JAFI can work and if it does work better than the average consumer.

After all, in general you didn't hear of ERE style lifestyles in the 1900-1940s. Not saying they didn't exist, the word "Tramp" for example meant something, but they were not trying to live "hedonically" middle class lifestyles. If you accept the premise ERE is a modern day phenomenon then attributing what changed seemed more interesting to me than measuring JAFI inflation year in and year out.

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Alphaville
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Re: Examining Inflation

Post by Alphaville »

white belt wrote:
Thu Feb 25, 2021 1:28 pm
Correct. There was discussion in the JAFI thread over whether using CPI is appropriate for an ERE individual.
increases in the cpi unfortunately affect the poor more, just like the sales tax.

for the financially independent person living off investments, perhaps there is no need to do anything in particular, as official inflation figures will be more important with respect to the value of stocks and bonds and the payment of interest and dividends, etc.

Hristo Botev
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Re: Examining Inflation

Post by Hristo Botev »

@JCD: Shoot, I was hoping you'd be the ambitious forumite who'd put together the ERE inflation index!

Regarding the 1900-1940s, I get what you're saying, but in my mind when I think of the prototypical ERE person, apart from @Jacob I tend to think of my grandmother and her sisters and how they lived during the Great Depression--resilient as all hell.

Qazwer
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Re: Examining Inflation

Post by Qazwer »

If item replacement procedures for most other CPI items were followed, the quality of the computers reported for pricing would fall to the lowest level of quality in a short period of time.

The attribute cost adjustment database for desktops computers has seven attribute categories. Each attribute category is populated with the values of specific components, resulting in a database of 250 to 300 attribute values that are updated monthly.

BLS used a specific model for computers due to the drift the OP noted in the linked graphic which set up my response - otherwise a computer from 1983 is worth less - if you are not going to do that I think you should be consistent with healthcare

https://www.bls.gov/cpi/factsheets/pers ... puters.htm

Do not disagree with OP main point - I just got overly internet worked up - sorry

OTOH my world view of how I view technology and societal structure value being interconnected was reworked - so personally useful

JCD
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Re: Examining Inflation

Post by JCD »

@Qazwer Your point is well made and I of course was thinking about it, but my purpose was to think in ERE terms where accepting hand-me-downs was valid. I believe that is something Jacob described doing via Craigslist once. So as long as you are willing to accept a used superior computer, I think my version of the story is valid. That being said, it is true that my experiment isn't a fair apples to apples to CPI, but without building a basket of goods, it can't be a fair comparison to CPI, even if I used the same methodology.

Again, look at the JAFI and think about WWJD and judge my spreadsheet accordingly. Jacob might never buy a Super NES or for that matter he might choose emulation (hardware reuse, 0 cost), but he certainly isn't going to go buying the latest xbox hardware as a "equal" to the 1990s version of video game consoles. So while the exact product maybe wrong, the philosophy I was going for was closer to Jacob-like not CPI-like.

Qazwer
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Re: Examining Inflation

Post by Qazwer »

@JCD a Jacob like index would actually be easier to analyze over time - the second best way is to ask what he spent each year which is by definition 1 JAFI - the best way though would probably to break it down with his actual large spending and small spending and compare it to that from 1950 to today (apples to apples) - I am trying to phrase this though without being a total ass and not acknowledging there is a human being involved - I am also failing at not being a total ass and not acknowledging there is a human being - sorry not sure how to say what I want to say without being a jerk - but I find the concept fascinating and potentially very elucidating

Hypothesis from which I am making personal decisions: there has been a deflation when you include the costs and same basket of goods. This era of abundance and relative equality in access to key technologies is what helps (but neither necessary or sufficient) the ERE movement
The objects which have increased in nominal costs are not required in ERE life. Information is cheaper. Communication is cheaper. Entertainment is cheaper. Realizing the era and the relative abundance is not obvious and difficult to comprehend. But a 1920’s tramp and a 2021 ERE live very different lives.

Hristo Botev
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Re: Examining Inflation

Post by Hristo Botev »

Qazwer wrote:
Thu Feb 25, 2021 2:13 pm
@JCD a Jacob like index would actually be easier to analyze over time
@Qawzer and @JCD: From back when I got "Fiskered" (sure do miss @Jason) back in 2018*, it looks like a JAFI basket might look like the following: homeowners' insurance; property taxes; healthcare; water/trash; electric/gas; cell; internet; food; car depreciation; and entertainment (Netflix/library).

*viewtopic.php?p=171904#p171904

JCD
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Re: Examining Inflation

Post by JCD »

@Qazwer I'm thrilled that the work I did has been useful to some folks. I spent a lot of hours thinking about the post before I ended up posting it. You've not spent that sort of time and so I don't expect off the cuff responses to be as thought out. I don't take any offense, it is hard to discuss an abstract topic, judge one group (average Americans/Westerners) against a single "idealized" individual and not sound judgy somewhere in that, be it the creator of the measure, the idealizing, the individual or the average group. It is at least part of why academics end up sounding like they are in ivory towers. Hopefully I'm not sounding like a dismissive academic jerk either in my phrasing, I'm going to assume you try to read this with best of intentions. :)

My very small effort just asked, WWJD, what would average joe do and what big differences in outcome make themselves obvious. Of course with only 20 items it is probably not statistically sound, but this isn't the only data point we have. We also have Jacob's actual numbers, Jacob's own measure of reasonable expenses (using earth population), CPI itself, average consumer behaviors and I certainly personal looked at way more data points than I captured. I think leaving the breadcrumbs and a methodology which allows anyone else to build up a intuition about my theory. I started this project asking "Is CPI reasonably sound?" With a lot of examination, reading way more than I linked to and a lot of thinking, I think "near enough" is about all one needs to know, unless it is personally of interest (like us money-nerds find it).

However, a new question showed up, unexpectedly. In a sense I'm trying to ask the question, "Why does ERE work?" My intuition is that it works because the things that inflated the most are modern convinces or in ERE+economics parlance unnecessary goods while goods that ERE deems generally necessary have stayed cheap all the while wages have increased. The wage increasing is a big aspect of this and goes counter to common narrative of wages not increasing since the 70s. This does lead to the FAT/LEAN-FIRE, FIRE for professionals only style discussions. With ERE style FIRE you have a tendency to live in 1900-1960s style expenses with a few cheap perks thrown in. This means the wage increases from 1900 to 1960s are in fact part of what makes ERE work. In efforts to go through history like that cited here and here it seems ERE could have started anywhere mid-century on. Of course ERE as a broad philosophy rather than a lifestyle might go back much further (e.g. Resilience, Anti-fragile), but that is not really what I was getting at. I think this gets me to about as far as I have thought this through.

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