Patronizing?
I don't consider you less intelligent. I only consider you less knowledgeable. If you feel condescended, it is because I consider myself more knowledgeable on the subject of inflation calculations; therefore, in my mind you are the student and I am the teacher. Sorry if that makes you feel inferior, but there are few of us, including myself, who cannot learn a whole lot more from someone else. When I bump into teachers, I don't find myself feeling patronized; I consider myself lucky.
Sorry, but calculation of inflation has to be subjective. How do we take into account the worth of something without being subjective. Existentialists don't care. Most of what we buy is much better than it used to be. A few exceptions might be unprepared food and clothing. You are expected to pay more for better things. It is not considered inflation if you are paying a higher price for something which has an equivalent increase in quality or value. You are, however, expected to pay a higher price for something which becomes more rare.
In the case of energy, you get the same quality (or value, or energy, or British Thermal Units [BTUs] per unit volume), but it costs you more now than it did five years ago. Much of that higher price is because the commodity is becoming more rare and more in demand.
Now, back to the original subject -- increased energy prices is like a tax. It is like a tax because everybody pays it, producers as well as consumers. It tends to not be inflationary because producers of goods cannot pass on their higher energy costs when consumers also have less cash because of their higher energy costs.
Back to the rarity of things and the associated higher price. You are expected to pay more for things that are rare. Likewise (though looked at in reverse) money becomes more rare when interest rates are increased and also when taxes are increased. In either case, it is more difficult for you to buy things when objects of purchase become more rare or when money becomes more rare. Money becomes more rare when interest rates are increased, thereby causing a decrease in the money supply; or when money becomes more rare because more of it is taken away by higher taxes.
The fact of the matter is that most economists think that inflation in the United States is overstated by about 0.5%. This is just the opposite of what you are arguing. I don't have a poll to give you that proves this but I'm sure I could find one if necessary.
As for the way that housing is treated in CPI, it isn't very technical at all. That's because it isn't included at all. Only rent is included in CPI. You would be very wise to own a house if you don't already. This is how you stay ahead of inflation: own property. As inflation goes up, property values go up more. That is simply because property is an investment, and it is becoming more rare. Ownership of property is the keystone of capitalism.
As for housing, there is a thing called the affordability index. Because of the lower interest rates over the last few years, housing has never been more affordable to the younger generation than in many decades. This is the opposite of what you stated. In 1970, a very nice house could be bought in California for $25,000, but the interest rate would have been around 8%, or more, and you would have needed 20% down. In 2002, the average cost of a house in the US was $200,000, and you might not have needed anything down, but the average income was also 10 times higher, and interest rates were significantly lower. Meaning ... housing was more affordable in 2002 than it was in 1970.
In 1970 the ratio of average US household income to house price was about 2.6. In 2005 the ratio was about 4.8. That's price; that's not your mortgage. In 2005 your interest on the mortgage would be very significantly lower than it would have been in 1970. In fact, your ratio of income to monthly mortgage payment would just about balance out to the same ratio in 1970 as in 2005. However, more liberal loan terms would have made the house easier to purchase in recent years. These numbers come from a study which takes into account the increase in housing quality over that timer -- more people are opting for granite counter tops, more square footage, higher ceilings, three-car garages, thicker walls, wideband cabling and routers, more insulation, thermal windows, and higher construction standards (as related to storm and earthquake protection). |
