All year we wait for the Census Bureau’s report on real median household income. For two years straight it has shown a down trend, and so the Bureau’s report on 2023 was much anticipated. It came out finally and reported an up trend for the first time in three years.
Great news, right? Not so much.
There are two major reasons that this was nothing much to celebrate. First even with this data, we are now back only to 2019 levels, which suggests that in five years there has been zero net growth in household income.
Second, the “real” part of this means that the nominal dollars are converted using an inflation measure. The measure that the Census Bureau uses is called chained-type Consumer Price Index (CPI) extended backwards in time. Chained means that when consumers substitute a more expensive good for a cheaper good, the data discounts that out: hey, you are still eating. Chained CPI shows a dramatic difference from normal CPI: lower.
That is to say that the “real” part of this data reported a much higher income because chained is lower plus the CPI itself either leaves out major pieces of data, misreports others, or uses a plethora of cockamamie adjustments that have nothing to do with reality and in every case underestimate inflation.
In other words, the Census Bureau is just flat out wrong. American households don’t have more income in 2023 than 2022. They have less. All the official data out there cannot disguise that reality no matter how much they say otherwise.
Tragically, it does not matter. The history has been written, even if it is false. And this truly drives me nearly out of my mind. Practically the whole of official culture is claiming one thing when the truth is otherwise.
Now to the newest report on the CPI, which just came out. The Wall Street Journal offers a clever and strange headline: “Inflation Extends Cooling Streak.” The metaphor is odd: does cooling streak? Not really. The headline number is 2.5 percent over twelve months.
But that doesn’t quite capture the fullness of it. In fact, apart from energy, everything was hotter than before.
Even the Bureau of Labor Statistics (BLS) explains:
“The index for all items less food and energy rose 0.3 percent in August, after rising 0.2 percent in July. The shelter index increased 0.5 percent in August. The index for owners’ equivalent rent rose 0.5 percent over the month and the index for rent increased 0.4 percent. The lodging away from home index rose 1.8 percent in August, after rising 0.2 percent in July. The airline fares index rose 3.9 percent in August, after declining in each of the previous 5 months. The index for motor vehicle insurance increased 0.6 percent over the month. The indexes for education and apparel also increased in August.”
That does sound awful. In fact, the look of “victory” over inflation is truly awful.
All told, when you consider wholesale prices plus core, all we can really say is that the pace at which inflation is worse is not as bad as it was. But we knew that already. Meanwhile, actual victory is nowhere close at hand.
The Producer Price Index itself provides more detail. The dollar has lost one quarter of its value since lockdowns, even in this conventional report. This is the real story of our times, and no amount of strange headlines about the “cooling streak” can change it.
As for the accuracy itself, in nearly every category, industry reports levels of price increases that are two, three, and four times as high as the same category look in the CPI. This is true for groceries, housing, cars, health insurance, food away from home, and rents, and it also does not consider shrinkflation, added fees, and diminished services.
It simply cannot and does not consider new and crazy amounts of price discrimination that are now normalized. You can pay $300 for an airline ticket but unless you pay more at boarding, you are going to get the middle seat in the last row and probably be charged for carrying on even a bag you can set under your seat. The CPI does not care.
This is not just a geek concern. Getting inflation wrong means that your taxes are not adjusted properly. Your raises do not cover your costs. And most especially, everyone in the news media will claim one thing when the reality on the ground is very different. It makes us feel like we are going insane.
It also means that election predictions can be very wrong too. Many of these models are based on economics as a trigger point. If the economy is good, the incumbent party stands a better chance in the models. Nearly every high-end commentator is right now saying that the economy is good. That is the consensus based on the official data. It’s all incorrect, as much as it pains me to say this, but it is what it is.
The truth is known by the public however. Consumer sentiment today stands lower than it was in November of 1980 when there was said to be a popular revolt against bad economic conditions that led Ronald Reagan to take office. That tells you something. It’s proof that no matter what the major corporate news media says, plus all the government agencies, there is no denying the reality on the ground.
