THE WOLF STREET REPORT: What Worries me About “Hedonic Quality Adjustments”

As even basics are becoming unaffordable for these Americans, the official inflation data artfully papers over it. This arcane device also impacts investments, Social Security benefits, and inflation-adjusted data, such as “real wages” or “real GDP” (12 minutes).

 

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  166 comments for “THE WOLF STREET REPORT: What Worries me About “Hedonic Quality Adjustments”

  1. van_down_by_river
    Dec 1, 2019 at 10:13 pm

    Glad to hear someone finally comment on this theft.

    I pay about 33% in Federal tax (this includes the 15% paid to social security welfare system) but what the Fed charges me in inflation is higher still.

    I eventually got wise and put every penny in the markets but not before the Fed stole hundreds of thousands of dollars from me. What a scam.

    I have zero interest in all the crap they are putting in new vehicles, good thing they are now mandated by the Federal government.

    • Leser
      Dec 2, 2019 at 6:02 am

      Indeed good to see a reputable blog like Wolf’s spell it out plainly. People are feeling the pressure and blame it on various things readily presented to them as culprits by interested sides. The more people realise that rising taxation in the form of hidden inflation is what’s slowly suffocating them, the more hopefully turn their attention to central banks’ and complicit governments’ policies.

      The U.S. has thus far avoided the green tyranny as another inflation driver. In Europe it’s already in full swing, best example Germany: retail electricity prices have risen six-fold (!) since before the onset of the “Energy Transformation” from 5 to 30 ct/kWh, now the highest in Europe. Power is of course a key production input and drives up costs – while production is not yet driven out of the country.

      The point of the Energy Transformation was to reduce greenhouse gas emissions. The reduction achieved since its start in 2000? After an *increase* along the way, now back to practically where we started with just a marginal GHG reduction. Ironically, the reduction is partly caused by reduced economic activity.

      The cost of it all? An estimated €500bn in higher power costs for the German rate payers through 2000-2025. That used to be a lot of money for a country the size of 2 Californias or 4 New Yorks. Especially for a net effect of around zero, or even negative all considered.

      • nhz
        Dec 2, 2019 at 6:45 am

        In neighbor country Netherlands electricity prices are supposed to go DOWN in the next few years because of our “Green Deal”, but reality is that the main energy cost for most Dutch households is natural gas and that will get far more expensive (some people like those on social security are mostly shielded from cost increases). Plus people are forced over time to invest heavily in expensive gas heating replacements like heat pumps + solar because in time natural gas use is being phased out for normal consumers (not for the big industrial users/polluters though). The official reason for this change is earthquake damage in the province of Groningen where most of the gas is extracted, but politics never cared about this damage in the past so I guess it is just a convenient excuse for forcing expensive measures.

        It would be easy and probably even cheaper to buy all the natural gas we need from Russia, but of course we cannot do that as they might invade the country through our gas boilers and steal the next elections (or something like that …). Natural gas is about the cleanest option available for many kinds of use where transitory sources like sun and wind will not work. The energy transition is supposed to cost 80K euro per household, but knowing politicians it is going to be far more expensive than that (and have far less real climate benefit than projected). Energy use in Netherlands is still increasing, of course because the biggest energy users get by far the lowest prices per unit and countless exemptions (encouraging waste instead of investing in better energy efficiency) and ordinary citizens pay the bill for this policy.

        I have no doubt our energy use could fall dramatically without bad consequences for most citizens, by cutting incentives for really bad energy behavior (like zero tax on air travel, idiotic car taxes, extremely low energy cost for the biggest users/polluters). Some big polluters would bear the cost and probably go out of business (and take some jobs with them) so sadly that will never happen. Even more as the Netherlands has been ruled for ages by oil giant Shell, and no bureaucrat or politician (including the Greenies) dares to really go against them.

        Over the last years the Dutch government has worked overtime to shield energy intensive companies like large greenhouse farmers and some of the biggest industrial users from new EU regulations that force them to save energy, e.g. by officially splitting up these companies in many small ones so they are exempt from the new rules. This tells you how honest they are about this Klimaatakkoord (Green Deal).

        I’m convinced the climate is in serious trouble and that we can do a lot to reduce the risks and bad consequences, but for politics it is just a racket to further extort the population – in Netherlands and probably all over Europe. So nothing will be done that really helps until it is too late to change direction.

        • nhz
          Dec 2, 2019 at 6:50 am

          P.S.: the biggest boondoggle is that according to the plan you can tack the 80-120K cost of the energy transition investments on top of your existing 102% mortgage (for often old, badly insulated and basically POS homes …) and never worry about the cost. Never mind that the Netherlands already has about the highest private debt in the whole world, it is all “for the benefit of the planet”. Of course the bill for this madness will arrive, and politics will decide who is exempt from paying up.

        • Ethan in NoVA
          Dec 3, 2019 at 1:33 pm

          I was thinking about this. If you had a household solar array (or widespread houses with such devices) you could just throw the excess energy into electric heating while the sun is out. Save the non-renewables for night time. It wouldn’t eliminate the use of non-renewables but lessen the use of them.

        • nhz
          Dec 4, 2019 at 6:10 am

          @ Ethan:

          Yes that could work in the short run like daytime/nighttime requirements, but not to bridge the wintertime. And that’s the problem, you still need something to get you through winter because it’s impossible with solar only unless you have a huge (and very expensive) solar roof. And in most of the pretty old Dutch housing stock solar roofs are not even allowed currently, or too expensive to install due to the roof construction and orientation. Even when storing solar electricity as heat (lowest value energy), you need most heating after the night when the solar panels are providing zero energy and some of the heat (stored in floor heating etc.) from previous day has already dissipated during the night. Solar boilers would make more sense but for some reason they have completely disappeared from the market here (though some new solar panel designs produce both heat and electricity).

          As another example of this problem, a Dutch company has build a car that runs on solar energy produced from its own roof. You can run a lot of km each year for free (obviously, the car is outrageously expensive to buy …). Problem is, in wintertime you would need to have it parked charging in the sun for many days before you could even travel a small distance. So the few that will be sold will spend the winter in the garage, and require another car to bridge the seasonal performance gap.

      • retired22
        Dec 2, 2019 at 1:11 pm

        No one that I have heard mentions the thousands of Dollars that the average citizen in America has lost in Bank Interest over the last decade.
        Lost because of the the Fed.’s Cheap money policies that finance Wall Street hustlers at the expense of my bank interest.

        • Cas127
          Dec 2, 2019 at 5:54 pm

          Retired22,

          No one in the US political class (left or right, MSM especially) will ever mention the 20 yrs of ZIRP that has essentially operated as an astronomical tax on the earning power of savings.

          Why?

          Because ZIRP/NIRP is the only way that the US gvt has to keep itself alive after decades of deficit spending have led to a debt to GDP ratio in excess of 100 pct.

          At that level, each 1 pct rise in interest rates rqs a 1 pct hike in GDP if a death spiral increase in debt to GDP ratio isn’t to be ignited.

          The Fed’s only way out is to semi-secretly print money (QE) in order to basically convert the gvt’s accumulated debt into the society’s increasing inflation (which is utterly ignored by the gvt’s familiars in the MSM).

          In short, decades of cancerous political class deficit spending have left it no way to survive other than as a global scale forger.

    • Deanna Johnston Clark
      Dec 2, 2019 at 8:15 am

      Wonder if it’s cheaper to import an old fashioned VW with no frills from Brazil or someplace. Yes, they still make such cars…with a simple heater and positive steering and no electric windows…for the working class and family.
      In the US, of course, the more debt the better they like it…more and more and more.

      • Paulo
        Dec 2, 2019 at 10:06 am

        An equivalent vehicle to your comment might be a used Tercel. I know a guy who bought one in cherry condition, low mileage, for $3,500 cdn. I have researched this question endlessly and have decided anything new is suspect and not worth buying. A good reputable mechanic to evaluate and help maintain something used? Priceless.

        I have a couple of 40 year old Honda trail 90 motorcycles. They still make them and I was going to import a brand new one a few years ago. Alas, they are frozen out of the NA market on the pretext of EPA standards, but it is allowable to import a 15 year old used one with no inspection required. Instead of a new 90 I ended up buying a CB 500, and that is considered to be a beginners small bike in NA. It goes 100 mph, for God’s sake.

        I believe your question, your very good question, will be answered with one word. Protectionism. The auto industry will talk to the pols and emphasise how important it is for their relection efforts not to allow any real competition from overseas. It is a racket, imho.

        My ’81 Westie safety features? Fire extinguisher mounted in the back, sleeping gear and food, dumb flip phone and tire gauge in the glovebox, and a Ham radio for everything else. :-)

        • Gandalf
          Dec 2, 2019 at 11:35 am

          It’s important to understand that a lot of the reasons for old cars being simpler and cheaper is that they lacked the many Federal safety and air pollution standards that got tacked on over the years.

          Contrary to this conspiracy theory about protectionism, the US auto industry fought ALL of these new standards, while foreign importers like Honda and Volvo worked to engineer better solutions.

          And don’t blame thuh guvmint regulations. We have MUCH CLEANER AIR now and highway deaths gave plummeted. It is worth every penny

        • Zantetsu
          Dec 2, 2019 at 2:34 pm

          Galdalf, you can’t fight the groupthink. Nice try though.

        • alex in San Jose AKA Digital Detroit
          Dec 4, 2019 at 1:13 am

          A CB500 is indeed a “spicy” high performance bike. In most of the world a 350 is considered a big bike, more a showoff thing than something you really need.

          Honda 90s are proof there’s some good in mankind.

          There are cheap, new, cars in the world made by manufacturers like Tata and Bajaj, and the truth of the matter is, people don’t want ’em. Not enough people, in the US anyway.

          The closest thing we’ve got in the US are cars like the Leaf, Spark, Yaris, Mini, Smart, etc. Even a Smart is 10 grand or more.

          But get a used car that’s a few decades old, and you get the best of both worlds. Get a Toyota SR5 or any older Toyota really, and just restore it/keep it maintained.

        • Arctic Chickens
          Dec 4, 2019 at 2:31 pm

          Gandalf, another perspective: from 1980 to now the new vehicle average sale price has increased about 26,000 USD. There were 17 million light vehicles sold in 2018, which would have been 340,000,000 USD less if not for this ‘hedonic’ price increase (the increase from ‘normal’, fed induced inflation isn’t included in that).

          These safety improvements, if they’re the whole story, reduced the vehicle death rate about 66%, approximately 72,000 people in 2018. If we assume just half of that hedonic adjustment was safety features, that still comes out to an additional 250,000 USD spent per life saved, per year.

          Is this feasible? I don’t think so. But then, I haven’t done further analysis. Is the productivity of the life saved enough to cover the cost of saving it? Might seem callous to ask, but when you’re talking 1.7T USD extra per decade… There are cheaper ways to save lives. Then there’s the question of whether every dollar extra contributes equally… If I had to guess I would say the 100 dollar seatbelt does far more than the 500 dollar backup camera, etc.

          It’s a complex issue. I think it does it injustice to write it all off as OK because lives are saved. At some point it is too expensive to save that life.

        • eg
          Dec 5, 2019 at 3:30 pm

          I still have my 89 BMW K100RS. The cheapest way to run a vehicle is to never sell it …

      • Gandalf
        Dec 2, 2019 at 11:24 am

        Those old Beetles and Tercels are a great way to die getting smacked by some redneck driving a giant truck or SUV or a tractor trailer truck.

        The old Beetles stopped being imported into the US because they couldn’t meet minimal Federal safety standards.

        I drove a rental Tercel in the 1980s once and it was terrifying. It was low to the ground and smaller than any other sedan on the freeways, felt like driving a go cart wrapped in a thin soda can

        • Zantetsu
          Dec 2, 2019 at 2:35 pm

          Every motorcycle you can drive is more dangerous than that though. And 1,000 times more fun. You gotta pay to play.

        • Gandalf
          Dec 2, 2019 at 3:39 pm

          In 2nd and 3rd world countries, motorcycles and mopeds are essential because most people can’t afford a car and roads are congested and gasoline hugely expensive.

          In the US, motorcycles used to be popular with kids until state guvmints noticed the high death rates and put age restrictions on motorcycle licenses. So today, motorcycles are largely the provenance of adults wanting that outlaw, “born to be bad/wild” image, even if they are really RUBs in disguise (vulture capitalist Sam Zell is a Harley RUB).

          All I can say is that they deserve that 35x higher death rate for their poor choice of transportation. Still waiting for Zell to get creamed by one of his thousands of angry former employees while riding that Harley

          Cars are basically designed to get you from point A to point B, as safely and efficiently as possible. Cars can carry entire families, and in the bad old days of unsafe cars, entire families would get wiped out in fatal accidents.

          From my reading of history, such victims included Colonel James Jabara and his daughter in a tragic VW Beetle rollover in 1966. Jabara was a much decorated pilot and the second highest scoring American ace in the Korean War and one of the youngest Colonels in the USAFat the time, a fast rising star.

          The VW Beetles had a fatal tendency to handle poorly on bad surfaces and to rollover, which was exactly what happened

          Jabara deserved better. We all deserve better. Sam Zell deserves his motorcycle

        • nhz
          Dec 2, 2019 at 4:03 pm

          Cars can carry entire families, which means they are inefficient by definition for normal commuter traffic where single passengers are the norm; even more if it is an EV that is hauling the additional weight of a whole family in the form of batteries on every trip ;(

          What we see in Europe is that increasingly older vehicles are banned, taxed extra or have more limited parking options in e.g. older inner cities (and sometimes bigger areas) because they pollute more. This can start to bite over the years because more and more destinations will become off-limits if you have an older car. I guess this idea could catch on in parts of the US as well.

          Initially this idea makes sense because IC pollution is worst in these older cities and banning older cars helps clean up the air (and the building facades …). However, until now most cities haven’t banned IC scooters, leaf blowers etc. that cause more pollution that 5-10 fairly recent cars. People might decide to ditch the car and use a cheap and far dirtier scooter instead … plenty of room for bad incentives.

        • GrassRanger
          Dec 2, 2019 at 5:56 pm

          Yet everytime I go to town I see Mini-Coopers and other tiny 2-seaters that match your Tercel description. What’s old is still new.

        • Raj
          Dec 2, 2019 at 8:10 pm

          So… you like Sam Zell?

        • Frederick
          Dec 3, 2019 at 7:44 am

          My father drove a 1966 beetle back and forth to his dental office everyday for thirty years including lunch at home without a hitch in a close suburb of NYC Either he was lucky, cautious or the times were just safer I’m not sure

        • RangerOne
          Dec 3, 2019 at 3:44 pm

          I don’t see any reason to hate on people who love and drive motorcycles.

          These people are selfless daredevils who chose to experience the thrill of being one with the road. While simultaneously driving a vehicle that poses near zero risk to me or my family driving in an SUV.

          The people who can suck it are the ones who needless drive behemoth vehicles that can one shot me if they fuck up and plow my car. On that note buying big vehicles is a survival arms race. But relative to a compact car, I am the asshole in a midsized SUV.

        • NBay
          Dec 3, 2019 at 7:03 pm

          Ha-Ha-Ha!!!
          Then the Honda 600’s a buddy of mine and I drove for 4-5 years during the 80’s recession (we parted out a lot to keep ours going, and sold parts to other “Hondistas”)
          would have terrified you into shock…..or something.

      • Cas127
        Dec 2, 2019 at 5:59 pm

        DJC,

        Ironically, I think that Mexican pdtn of the new era (albeit pricier) VW bug shut down not that long ago – probably in favor of some 40k SUV that can only be sold pursuant to 7 yr loans, under conditions of FED ZIRP, to a CDO that is destined to default.

        Your idea makes too much sense for today’s America.

      • panatomic-x
        Dec 3, 2019 at 8:23 am

        you can only import cars 25 years or older. old Japanese “kel” cars and trucks have a cult following. there are importers who sell them in the us starting at about $4500.

        a more peactical alternative is the mitsubishi mirage. they are basic transportation and are deeply discounted from their $14k list price.

      • sierra7
        Dec 3, 2019 at 11:34 am

        Deana Johnston Clark:
        How about Cuba??? LOL!!!!!!!

    • Blockhead
      Dec 4, 2019 at 3:30 am

      The real problem with hedonic quality adjustment is that consumers do not get a similar adjustment in their income.

  2. Allen
    Dec 1, 2019 at 10:38 pm

    People are not entitled to the latest technology. You can still buy a Nokia “dumb” phone and get a non-data plan from your carrier, despite the availability of smartphones. Likewise, you could posit that a new Camry in 1970 was expected to last 100k miles, but a 2020 will now last 200k. If you need a car that will last 100k miles, just buy used with 100k miles on it, which is probably cheaper than the new Camry was in 1970.

    • van_down_by_river
      Dec 2, 2019 at 1:30 am

      So naturally all of the gains from improved manufacturing and technology should flow toward the finance sector via inflation rather than to the consumer in the form of deflation.

      And the 2 lbs of frozen blueberries I could purchase for $3 in 1998 but now cost $10, how have they improved? Not getting any more miles out of those (if anything the quality has decreased significantly).

      • Dec 2, 2019 at 11:01 am

        van_down_by_river,

        I really should stop teaching guys how to shop. At least I should charge for it. But here we go again. Try the frozen “Wild Boreal Blueberries” from Canada at Trader Joe’s. Here in everything-is-overpriced San Francisco, they’re below $3 a pound. They’re small, as wild blueberries should be, and delicious.

        • Frederick
          Dec 2, 2019 at 12:20 pm

          The small dark blue blueberries are the best They are hard to find in East Coast supermarkets though Whenever I’m in Maine I buy them from people selling them on the roadside Delicious and great for you Three dollars a pound is amazingly inexpensive for that kind of berry Frozen or not

        • van_down_by_river
          Dec 2, 2019 at 7:27 pm

          I just checked your recommendation, the 2.99 price looks pretty good but the package is only 12 oz ($9.00 per 2-lb equivalent) so that’s pretty close to the 9.99/lb I pay at Fred Meyer and still represents a 3X price increase compared to 20 years ago (I’m not making 3X 1998 pay).

        • Dec 2, 2019 at 10:39 pm

          van_down_by_river,

          That’s funny — that the bag at your store is 12 OZ. Do we now have local shrinkflation by zip code? Or maybe this shrinkflation hasn’t come to us yet.

          Here is the image of an opened bag from our freezer, 16oz as you can see (click on the image to enlarge).

        • panatomic-x
          Dec 3, 2019 at 8:29 am

          i’m picking up some today! you wouldn’t believe what my wife pays for blueberries at jeff bezos’s supermarket!

    • Jason Tilton
      Dec 2, 2019 at 3:00 am

      How about the can openers that now open a couple of cans before breaking, is that counted as a hedonic quality adjustment downwards? This nonsense of improved quality seems pretty ridiculous to me. The cars are harder to work on, are easily damaged and no, don’t really last longer. Organic food used to just be called food. The fact is, debt and the public sector are sucking all the value out of the system.

      • nhz
        Dec 2, 2019 at 6:53 am

        I’m sure build-in obsolescence qualities as an additional quality.
        Never worry about how long you have to wait before you can buy the new-new thing, it will fall apart or stop working correctly as soon as you begin using it :)

        • panatomic-x
          Dec 3, 2019 at 8:37 am

          planned obsolescence has been perfected by the car industry. repairs have become so complex and expensive that it rarely makes sense to fix anything major after 150k miles.

          fyi, my oxo can opener has held up pretty well.

        • nhz
          Dec 3, 2019 at 11:56 am

          I have heard some examples where e.g. certain simple IC engine parts need replacement within months after the warranty expires, by design (in this case it was BMW, but I guess other car companies use similar tricks). Something almost nobody can replace themselves so a bonus for the service department ;(

          But a lot of gear is even worse, try to repair a modern laptop or digital camera. Sometimes repair parts are not even available officially. Stuff like inkjet cartridges/print heads or batteries can be locked to prevent using much cheaper but just as good third party alternatives or the firmware makes sure the gear will stop working fully after some years if you don’t upgrade. Even if a computer or printer can still be repaired, in many cases it doesn’t make any economic sense because repair time (wages) and spare parts can be more expensive than new gear with possibly better spec (but probably even worse construction …). I am using a low power miniPC that is now over ten years old and still working, after a few simple repairs ;)

          Bicycles, washing machines – stuff that used to last for ages 1-2 generations ago it now all build for minimum lifetime and often it seems they have deliberately made DIY repairs difficult or impossible.

      • Deanna Johnston Clark
        Dec 2, 2019 at 8:18 am

        There are USA made can openers that last…they cost about $24 but the steel lasts.

        • Zantetsu
          Dec 2, 2019 at 2:37 pm

          Yes I bought one of those. People complain all the time about how items don’t last like they used to, all the while complaining that they’d never pay the equivalent they paid back then for those same items now.

          You can get the same quality you had before if you pay the same price you paid before. Most people refuse to pay the prices and then complain about the quality. Most people are kinda dumb.

        • Jason Tilton
          Dec 3, 2019 at 2:22 pm

          The point is that the government is not using the $24 can opener in their calculations.

      • polecat
        Dec 2, 2019 at 9:43 am

        Humm .. I think it’s ALL about FedHead Quality Bankster ‘Hedonistics’ if you ask me …

        .. but then they deign not to answer, as the serfs are just supposed to take and savor their maggoty gruel.

  3. HB Guy
    Dec 1, 2019 at 11:03 pm

    Wolf, great commentary that opened my eyes to several factors I wasn’t aware of.

    You mentioned the purchasing power decline of the dollar since the 1960s. If we go back a little further to the Fed’s unfortunate founding in 1913, the decline is almost 99.99% due to dollar debasement, counterfeiting – er, QE – etc. I’m curious how you view this, given that one of the Fed’s “mandates” is price stability.

    It seems as though “only 2.0% price inflation” is the Fed’s definition of stability, yet, as you mentioned, with hedonic measurements, prices actually rise much faster.

    Another point worth considering is the change in how income tax brackets are adjusted as a result of the 2017 TCJA. More specifically, the CPI measure previously used was replaced with the “Chained CPI” that is expected to further “slow” the stated rate of inflation. Put another way, it appears to be a form of stealth bracket creep that will further impoverish anyone paying taxes (all 50% of working Americans).

    • Dale
      Dec 1, 2019 at 11:41 pm

      The Fed has chosen 2% as their target level of inflation.

      But the statute clearly defines price stability as “zero per centum” inflation.

      30 years of breaking the law, in the course of which prices increased by over 150%. And, as Wolf points out, the increase was even higher without hedonic adjustments.

      • timbers
        Dec 2, 2019 at 12:11 am

        No informed person – None – advocates Fed shld seek 0% inflation. Even the greatest monetarist of them all Milton Friedman stated 2% was too low and instead shld be 3 to 4%.

        • CB
          Dec 2, 2019 at 9:34 am

          Why wouldn’t an informed person demand 0% inflation? Please make your case.

        • MB732
          Dec 2, 2019 at 11:31 am

          CB a time-saving tip for you…Anyone who starts a statement with some form of “You would have to be an idiot to disagree me” probably isn’t worth engaging.

          And timbers, you’d have to be an idiot to think that is an effective persuasive technique ;-]

        • Frederick
          Dec 2, 2019 at 12:22 pm

          Well, expert or not Ole Milton could be wrong They are wrong more than they are right And what interests did he serve by making such a claim Oh right The Bankers

        • Lisa_Hooker
          Dec 2, 2019 at 1:44 pm

          Yes, of course. The price of everything should double every 18 years at 4%, not just double in cost every 36 years at 2%.

          Does anyone want the cost of living to stay the same – or even go down due to increased productivity and automation. Gasp.

          Ok, there may be a few folks here that would enjoy stagnant/lower prices. Perhaps some of those getting 0.05% on savings accounts.

        • cb
          Dec 2, 2019 at 1:55 pm

          Milton Friedman, perhaps a great monetarist (if there is such a thing), was not a great economist. He, like Alan Greenspan, with the passage of time are being recognized for being greatly over rated.

        • bungee
          Dec 3, 2019 at 12:30 am

          2% equals “price stability” because the entire system demands a certain amount of inflation to keep from completely seizing up and collapsing.

          deflation is a stake in the heart of any fractional reserve system. so while 2% is not the same prices year after year, it keeps everything “stable.”

          0% inflation would lead to lots of defaults and the resulting drop in prices would be an even bigger swing.

          everything done is designed to keep things going as long as possible. they truly mean it when they say they want stability. but then, the system treats them pretty good doesn’t it?

    • cb
      Dec 2, 2019 at 9:45 am

      I propse we avoid propaganda terms put forth by the FED, such as QE. A better term would be creating money out of thin air. (i like your use of the word counterfeiting, though apparently they have the legal right to create money out of thin air.)

      • Lisa_Hooker
        Dec 2, 2019 at 1:49 pm

        I’m tired of this “thin air” crap. There is a limited amount of air, it thins out pretty quick as you gain altitude.

        There is no limit to the FED creating money. Well maybe the digit limitations in computer programs (think the Y2K issue). But I’m sure they will work around that limit.

    • Anon1970
      Dec 2, 2019 at 9:46 am

      Back in 1913, the British pound bought $4.80 US under the gold standard. These days it only buys about $1.30, maybe less. The German mark suffered a total collapse in 1923. The Italian lire went from 4 to the dollar in 1913 to 600 to the dollar in the late 1950’s when the Italian tenants upstairs used to give me the stamps from their air mail letters from home for my stamp collection. The lire continued to lose value (about 2/3 vs. the $) until it was replaced by the Euro two decades ago. So as bad as inflation has been in the US in the past century, it has been much worse in most of Europe in that time period.

      If there is a common thread here, it is that wars can be highly inflationary. It is much easier for national governments to print money than to raise taxes once the bond market no longer wants to buy more government bonds at existing interest rates. Germany experienced that phenomenon towards the end of WWI when it started printing money to cover war related expenses. The US experienced a burst of inflation after LBJ’s guns (Viet Nam war) and butter (new social programs) policies began to affect prices.

      • Lisa_Hooker
        Dec 2, 2019 at 1:53 pm

        Reminded me of the great time I had in Italy in the late 1980’s with the Lire around 1100 to the dollar. Even the Swiss Franc was two for a dollar.

      • nhz
        Dec 2, 2019 at 4:13 pm

        The Euro went down over 80% compared to Gold since its inception 20 years ago, and slightly less measured in other goods like Dutch real estate. All that without a war (ignoring the current War on Savers and heavy involvement of many EU countries in the Forever War). The Draghi maffiosi at the ECB are very good at their game :(

        In the eighties we would joke in Netherlands that if you wanted to be a millionaire you should move to Italy; much the same has been accomplished by replacing the Dutch guilder with the euro (or pleuro as some call it over here, short for a plunging currency).

    • Paulo
      Dec 2, 2019 at 10:14 am

      Per HB,

      Does anyone think the elites will still feel elite if working people make a decent income and carry a comfortable swagger in their walk? There has been a concerted effort to demonize unions from Reagan onwards. Worldwide. How dare someone expect a universal standard of education? Healthcare? Too bad so sad. “No soup for you”.

      The connnected and entrenched play a long game and have the power to do so. They will continue to win until everywhere turns Hong Kong.

      • Ethan in NoVA
        Dec 3, 2019 at 1:43 pm

        I am grateful for the rights that they brought to workers. I am very unimpressed when a non-union person isn’t allowed to operate a power screwdriver or you have to hire someone in to hit the button on an elevator because of draconian union policies and their power. Also, hiring an electrician to plug a standard cable into an outlet. Check out the terror unions bring to trade shows and events sometime. Want it done on time? Be prepared to “tip” them to get it done on time.

  4. Joe
    Dec 1, 2019 at 11:05 pm

    A lot of people have sold their souls to keep people I’ll informed rather than put people in jail or even protect people from poor investing practises. Psychiatrist and spin doctors are the norm now for much of our current lives.

  5. timbers
    Dec 1, 2019 at 11:32 pm

    Humm…let me see…

    What would happen if the Fed applied REVERSE HEDONIC QUALITY ADJUSTMENTS…

    to healthcare?

    Falling life expectancy 3rd yr in a row?

    1). REVERSE HEDONIC QUALITY ADJUSTMENT 5% per year.

    Sky-rocketing insurance cost imposed upon employers for less coverage:

    2). REVERSE HEDONIC QUALITY ADJUSTMENT 6% per year.

    Less coverage, higher co-pays, much higher deductibles:

    3). REVERSE HEDONIC QUALITY ADJUSTMENT 5% per year.

    Surprise healthcare bills because insurance companies teach their staff how to make sure your healthcare if out-of-network:

    4). REVERSE HEDONIC QUALITY ADJUSTMENT 7% per year.

    Before you know if, we might think the CPI accurately stated might be 5% or 6% or 8% a year.

    Of course, we could pass MedicareForAll and reduce our national healthcare costs by about 40% in one fell swoop.

    Then, the CPI would fall.

    For real.

    Except the Fed would say it didn’t.

    • Petunia
      Dec 2, 2019 at 10:13 am

      My current “favorite” hedonic adjustment is soap that doesn’t clean. A few months ago I realized the bathroom soap didn’t clean the sponges anymore. Now the laundry detergent doesn’t take the bad smells out. I see a pattern here.

      • Gandalf
        Dec 2, 2019 at 11:50 am

        I use the Free and Gentle Dawn dish washing liquid for everything, including as a body wash. Works great, cleans great, relatively inexpensive. Soap is an ancient technology that doesn’t really clean that well

      • Harrold
        Dec 2, 2019 at 12:01 pm

        They have removed the phosphates from the soaps which renders them mostly useless.

        You can buy a pound of tri-sodium phosphates at Home Depot for $4 and restore them back to their original formula if you are so inclined.

        • Gandalf
          Dec 2, 2019 at 1:39 pm

          Phosphates were removed from laundry and dishwashing detergent, not solid bar soaps.
          Runoff from sewage high in phosphates was causing massive algae blooms

          Bar soaps have always been made from long chain fatty acids mixed with lye (sodium hydroxide) to produce a fatty acid salt, aka soap. This is in fact the FDA regulated definition of “soap” vs detergent or cleanser.

          Most bar soaps still use animal fat, as this is really cheap stuff from the rendering plants. Some, like ivory soap use coconut oil. Others use palm oil.

          The animal fat content of most bar soaps is disguised in the ingredients as “sodium tallowate”. Hahaha! Probably from Bambi and other roadkill and leftovers from the slaughterhouse sent to the rendering plants to be boiled down into “tallow”

          As for laundry detergent, the phosphates were replaced with better cleaning agents and water softeners.

          The phosphates acted as water softeners, and were not for the basic cleaning purpose of binding organic materials stuck on clothing to water so that they could be washed away by water. Hard water with calcium and other salts prevent this from happening.

      • Gandalf
        Dec 2, 2019 at 2:12 pm

        More TMI,
        In college organic chemistry, the professor discussed the principles of how soaps and detergents worked. And, he made a brief comment that urea, the main component (besides water) of urine, was a terrific detergent because of its combination of hydrophilic and hydrophobic parts. Everbody thought this was funny.

        Some years later, I found this really cheap generic Costco dishwashing liquid by the gallon. Its main ingredient was…… urea!

        And it did work great!

        • Raj
          Dec 2, 2019 at 8:21 pm

          Gandalf, I’m really appreciating the articulate prose and science lessons today. It’s not every day someone brings up the importance of long-chain fatty acids in dissolving dirt.

        • jb
          Dec 3, 2019 at 10:39 pm

          As did the ancient Romans.

    • NARmageddon
      Dec 2, 2019 at 1:29 pm

      >> REVERSE HEDONIC QUALITY ADJUSTMENT

      Spot on, why are the goods and services where you get LESS for the same (or higher) price also adjusted?

    • wkevinw
      Dec 2, 2019 at 3:26 pm

      Life expectancy reduction is due to “lifestyle choices”, maybe better described as “mental health” problems: substance abuse, food abuse, etc.

      It’s not due to the lack of “physical” health care delivery or care. (if “physical health” and “mental health” have different meanings)

      • sierra7
        Dec 3, 2019 at 11:47 am

        wkevinw:
        No consideration for “good genes”?????????? Really???????

  6. Larry nuss
    Dec 2, 2019 at 12:21 am

    Wolf, Excellent blog, always to the point..

    As far as the CPI and inflation numbers coming out from the fed periodically, everyone that’s paying for their daily living expenses I.E. rent, food, electricity, household necessities etc. Knows that all of these prices have been steadily increasing much more and faster then the raises that the average American worker gets, and much more then the feds officially stated inflation numbers.
    “2 PERCENT INFLATION” give me a break…
    A slice of pizza costs double today then it did 5 years ago…..
    Health insurance is double from 7 years ago, and covers less…high DEDUCTIBLES ETC.
    Etc. Etc.
    I always knew that these CPI numbers are always cooked and rigged, No different then many of the S&P 500 companies that cook the books and deceive their investors with the non GAAP accounting, and with their never ending 1 time charges, always described in their quarterly reports.
    THe Fed is playing the same game… in order to keep the real inflation numbers from effecting how much they will need to pay to the retired American slave.etc.

    And off topic…Yes tariffs are great.. we need to bring back manufacturing to the usa, what other types of job can there be here in the USA?? Home health aides?
    Which is the one of the fastest growing occupations in our major cities, what does that produce to our society? Although its needed, it does not add to much, those are one of the lowest paying jobs around and dosen’t add value to our society..
    Let’s face it the majority of the people will not be programmers working at tech companies creating software and apps or learning how to operate sophisticated machines or robots… you need to be a geek for that and the vast majority of people are NOT GEEKS….

    • Lance Manly
      Dec 2, 2019 at 6:48 am

      Tariffs aside, manufacturing will never be the employer it once was. Outside some specialized fields and products robotics will produce higher quality goods at a lower cost. We need to find a way to deal with that or we will throw the basic tenets of capitalism out the window.

    • rhodium
      Dec 2, 2019 at 10:33 am

      The home health aide boom is one of the funnier notes of optimism in the media. How many retirees actually have the money to pay an employee out of their savings? Virtually none, so home health aide jobs therefore can only marginally exist in most cases when social security pays for them. Seems unlikely with its current funding issues, not to mention most people would rather take a higher paying job if at all possible, because wiping old people for $10 an hour is probably a last resort. I read this funny article bemoaning that this place couldn’t afford home health aides because they kept having to increase wages to retain them but it got to the point where they literally couldn’t afford it, and they acted like this was a moral failing of the aides. No, I call that a market and the elderly being too poor to afford the price. Americans still hold onto this notion that we should be able to afford things that we can’t because it’s not widely admitted that we’re poorer than we think we are, and the understated cpi numbers are not helping. The Fed wants to create inflation, but few acknowledge the odd coincidence that official inflation just happens to track closely to most people’s wage increases. Until they can solve the wage growth mystery (Larry is probably onto it when he says most people will not be programmers) then the Fed, wanting to create inflation, should just start direct depositing us money and make the capital of the rich work for it.

      • Petunia
        Dec 2, 2019 at 10:55 am

        While living in Florida I would occasionally stop at a Publix in Boca Raton. We referred to it as Imperial Publix because there were columns around the parking lot and all the elderly shoppers had an aide shopping with them. Most of the elderly were driving their own very expensive cars and didn’t look like they needed the extra help. Our tax dollars at work.

      • Endeavor
        Dec 2, 2019 at 2:43 pm

        Home Health Aids may be second to Security Guard. I’m reading that many states and cities are expanding the shoplifting misdemeanor point to $700 or more. Anything less will not be prosecuted. Soon every store with goods like food, liquor, electronics and more will have a guard at the exit. One $700 loss prevention will cover a guards whole week of salary. Talk about moderating price inflation from shrinkage!

        • bungee
          Dec 3, 2019 at 2:56 am

          or eveything locked up. already at our local supermarket (safeway) all of the soaps, shampoos, toothpastes, floss, women’s stuff, cold medicines, entire aisles are all under lock and key and you have to ring a bell for assistance.

          the guards don’t really do anything except for one who totally dropped a guy for stealing… never saw that guard again. got fired for doing his job probably. i feel sorry for them.

          also the hardware store at columbus and vallejo finally gave up and just put gates on certain aisles and you have to be escorted while in there.

          im envisioning a day where the entire building is just a big vending machine. you shop from a touch screen and it comes out a chute all wrapped up. what we’ll use to pay idk.

          …aisle. what a strange word

    • Lisa_Hooker
      Dec 2, 2019 at 2:08 pm

      No one, of any importance, will directly address the Bell Curve of intelligence. And I don’t mean IQ scores, just common intelligence. This has been of greater and greater significance to employment. More so in the future, which starts now. You don’t get a Phd for attendance – yet.

      • nhz
        Dec 3, 2019 at 12:04 pm

        but you almost get a PhD nowadays for being disadvantaged, isn’t it?

        It’s sad how the requirements for entry into higher education have gone down the drain in order to enable anyone to go to college and rack up epic debt (even if they simply don’t have the required basic intelligence and other qualities). In Netherlands we now have people who sign up for technical university who failed in math, and people who study to be a primary school teacher who failed in Dutch language and basic arithmetic. But who cares, as long as they learn to consume and trust the government (or their representatives in the media etc.) it’s all fine.

        And don’t get me started about evolution running in reverse thanks to our social and medical procedures …

        • Lisa_Hooker
          Dec 3, 2019 at 1:21 pm

          I remember when graduating from an American college meant reasonable proficiency in a foreign language (or Latin, ancient Latin). You had to do a thesis and have it accepted for any BA/BS degree. One or two semesters of calculus was common for undergrads. All freshmen (freshpeople?) were required to take at least one semester of Logic and also Art History, even engineering majors. How things have changed.

  7. daniel weise
    Dec 2, 2019 at 12:45 am

    Thanks for the blunt truth Wolf,just confirms my long held suspicion regarding this Scam. there are billions if not trillions of SS payments being “saved” by under reporting inflation. So now we can count on these Criminals to be prosecuted under the RICO act for defrauding the American public and stealing retirement money from the Elderly ? never mind…

    • Trinacria
      Dec 2, 2019 at 2:53 am

      Daniel W: my sentiments exactly. I am trying to leave a simple life, but now realize that “hedonism” is being forced upon me. As I have posted before, just another great example of the old saying “figures lie and liars figure”.
      Also, so much for living simply so others may simply live!!!
      Thank you Wolf for pointing this out.

      • bungee
        Dec 3, 2019 at 3:01 am

        one thing i learned long ago; the simple life is for the rich

    • Gershom
      Dec 2, 2019 at 9:41 am

      The Federal Reserve has had one singular purpose since its clandestine December 23, 1913 establishment by the robber barons of the era: to serve as the oligarchy’s chief instrument of plunder against the 99%. The Fed has been a brilliant success in facilitating the looting and asset-stripping of the proles and enabling a corrupt and venal .1% in the financial sector to concentrate wealth and power in their own grasping hands, with the globalist media suppressing any and all mention of the Fed’s racketeering. At some point, though, the scale of the Fed’s swindles are going to become so onerous that the masses are going to reach the breaking point, and reach for their pitchforks and torches.

      I hope I live to see the day when these Fed jackals and their Wall Street grifter accomplices are standing in orange jumpsuits and shackles in front of honest judges at post-collapse tribunals, finally being held accountable for their decades of financial warfare against We the People.

  8. mikey
    Dec 2, 2019 at 5:46 am

    When I first moved to my 25 year old townhouse, it still had all the original appliances and they worked – air conditioning, washer, dryer,etc. They didnlt work well but they worked. After replacing them with modern energy efficient models, I have had to either replace or extensively repair them all several times. Even knobs on the washer and dryer cannot be relied on except to break. I had a manual can opener my mom gave me 40 years ago that worked until 3 years ago. Since then, I have bought about 10 can openers both manual and electric. TV is better and light bulbs last longer. I don’t see anything else in my house that is better. I don’t believe the smartphone is an improvement as it results in me having to work a lot of extra hours plus spies on me constantly. I am required to have it for work.

    • Xabier
      Dec 2, 2019 at 6:14 am

      We still use a wooden spoon which my grandmother probably bought as a new housewife in the early 1930’s, and certainly not after 1953, when she met a most untimely death.

      Very reliable technology!

      Curiously, most cooking spoons I have bought for myself have broken or worn away quite rapidly.

      I detest buying kitchen white goods as the life-expectancy is now awful, whatever the brand. Germans, I’m looking at you….

      When the coffee grinder broke, I went out and bought a 200 yr-old brass mortar and pestle, and grind them that way – quite therapeutic actually.

      It is also beautifully proportioned, like most old-style tools.

    • Petunia
      Dec 2, 2019 at 10:22 am

      I use the washer dryer daily and a new set is averaging under 5 years. I’ve bought 4 sets in the last 15 years. One set we sold before we lost our home, but we knew it only had another year or two of life left.

      • Iamafan
        Dec 2, 2019 at 10:59 am

        An old salesman from Home Depot once told me (a long time ago) never to get rid of my old supersized Maytags (bought in 1987). It was the best advice from HD I got. I have changed motors, bearings, belts, etc. but it serves my family daily. This thing weighs a ton and you can feel and see the metal.

        • NONAME
          Dec 3, 2019 at 1:51 am

          The new ones are like tin cans. We have a new GE set and the noises it makes are hideous. When it was first installed, I nearly had panic attacks learning its new jolts, shakes, spits, groans and moans, etc. Plus, they’re just so d@mn loud, will drive you absolutely batty. I think the metal must be really thin compared to the old sets. The washer moves around even with everything level and looked at by a tech. Can hear all the items in the dryer toss around. Junk!

      • wkevinw
        Dec 2, 2019 at 3:35 pm

        Many of these items have gotten relatively cheaper. In real $, a TV and clothes washing machine are something like 5-10x less expensive today than 50 years ago. In addition, there’s survivorship bias- the bad ones are long gone, and the good ones are etched in our memories (e.g. old Maytags).

        Some problems are “by design” nowadays to meet some mandate for safety, environmental, etc.

        • nhz
          Dec 2, 2019 at 4:26 pm

          Especially with electronics I see a lot more recent stuff that is extremely low quality compared to similar products from 10 or 20 years ago, it really is designed/produced to break down as soon as the 1-2 year warranty expires (and often almost impossible to repair).

          I see some survivorship bias in items like homes though, the several century old monumental homes in my country often have excellent construction (overdimensioned, and with many clever tricks that are forgotten by now) compared to the new stuff. But just like with classic cars, they are becoming very expensive to maintain due to surging energy cost and special taxes. And agree about some washing machines, I’m using a very old and almost free second hand Miele washing machine (maybe the equivalent of Maytag in the US) – while they still make decent gear the older ones are often much better.

      • NONAME
        Dec 3, 2019 at 1:54 am

        I’ve heard SpeedQueen is really good as well as possibly Whirlpool commercial line. We have a new GE set and it’s well-hated!

    • Dec 2, 2019 at 11:18 am

      mikey,

      In terms of the overall economy, it doesn’t matter whether or not you and I see something new as an improvement. There are people who think the automobile is not an improvement over horse-drawn carriage. Good arguments can possibly be made by some folks that a smartphone is not an improvement over smoke signals. I get that.

      But in terms of the overall economy, it doesn’t matter what I personally think is an improvement. I personally think a smart speaker or smart thermostat in the house is a terrible surveillance device, and we will valiantly fight to keep them out of the house. But technology and innovation move forward, whether we personally like it or not. And these changes are being priced into goods, and this is what is being measured here.

      • RD Blakeslee
        Dec 2, 2019 at 1:19 pm

        ” I personally think a smart speaker or smart thermostat in the house is a terrible surveillance device …”

        I agree, Wolf. Our wood burning stoves have never had them and never will.

      • Lisa_Hooker
        Dec 2, 2019 at 2:33 pm

        If I ever do get a smart speaker I plan to keep it under a metal coffee can except for the brief time it would be used.

      • nhz
        Dec 2, 2019 at 4:29 pm

        also avoid the smart stuff outside the house, like smart doorbells ;(

  9. Crush the Peasants
    Dec 2, 2019 at 6:36 am

    Likewise, under circumstances of increasing productivity and flat wages, we must have deflation.

    Increasing prices with or without inflation are outpacing the ability of more and more consumers to pay.

    • Petunia
      Dec 2, 2019 at 11:02 am

      I see deflation as the next big move because eventually you just don’t have the extra dollar to spend. People are downsizing, selling stuff, buying discount, is this the behavior of people with rising incomes, no it isn’t.

    • Endeavor
      Dec 2, 2019 at 2:57 pm

      They use the BS with deflation everyone would always postpone buying waiting for the price to go down. Baloney! Americans will consume until they pry the credit card from their dead,
      bar-b-que chip stained fingers.

      • Petunia
        Dec 2, 2019 at 3:26 pm

        I wait for the sales, I have no choice.

        BTW, there’s an app that tracks when items go on sale or come back into stock, checks for coupons too. It is used on fashion sites, I don’t know if it works everywhere. Name is: Tagr.

  10. Lance Manly
    Dec 2, 2019 at 6:37 am

    Don’t even get me started on the “magic” PCE inflation that the Fed uses. The idea of chained inflation makes no sense. They expect you to buy stuff you don’t like because the stuff you like went up in price. I guess us mere mortals can live a crappy life as long as they get what they want..

  11. David Hall
    Dec 2, 2019 at 8:25 am

    The price of a home rose faster than the CPI since 2011. Medical costs rose faster than CPI, but now they can cure some forms of cancer. The price of aluminum was more expensive in the 1980’s. Now large iron mines use autonomous trucks or trains. Automated transport will expand. Rents are rising. 5G may compete against fiber optics bandwidth.

    • nhz
      Dec 2, 2019 at 9:12 am

      In Netherlands the cost of a nice home tracked the CPI/wages for over 350 years years (“Herengracht index”), with some big upswings and downswings due to good and bad times, until around 1975. After that the price to income ratio of homes started to move outside the band of the past centuries and never looked back – home prices have increased over the last 30 years at an average 8-10% yoy while incomes basically went nowhere. There was a small dip after 2008 but even then price to income was higher than in the four previous centuries. The index hasn’t been updated recently but I have no doubt it is at the highest ratio ever.

      Most other necessities of life (especially those mandated by the government) like healthcare insurance, rents in the free sector, tuition, public transport etc. have also increased at far above the official CPI for many years. The only exception over here is the cost of food but this comes with a huge cost in quality ;(

      Clearly there is one factor behind this and that is financialisation, unlimited money printing and surging debt.

  12. Gershom
    Dec 2, 2019 at 9:27 am

    When are the sheeple ever going to wise up to the systemic theft being perpetrated against them by the Fed and its central banker cohorts? With social unrest going viral around the globe, why aren’t the pitchforks and torches marching on the gold collar criminals who have been plundering the bottom 95% with Keynesian monetary swindles?

    • Unamused
      Dec 2, 2019 at 3:42 pm

      “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

      Henry Ford

  13. Winston
    Dec 2, 2019 at 9:29 am

    Sheehan on Michael Boskin
    January 19, 2010 by Frederick Sheehan

    Frederick Sheehan is the co-author of Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve. [great 2008 book – Winston]

    https://ritholtz.com/2010/01/economists-serving-their-political-masters/

    Excerpt:

    Steve Leuthold, founder and chief investment officer of the Leuthold Group, calculated the price of a new car in the U.S. had risen from $6,847 in 1979 to $27,940 in 2004. Using hedonic adjustments, the government calculated the price of a new car had risen from $6,847 in 1979 to $11,708 in 2004.

    The Boskin Commission was one scandal that economists actually denounced. Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003, said at the time “the debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.”

    Barry Bosworth of the Brookings Institute called the revised CPI an “ ‘immaculate conception‘ version of deficit reduction in which spending is cut without Congress taking the blame.”

    Jack Triplett of the Brookings Institute extended the argument: “What I liked least about the Commission Report was exactly what made it so influential – its guesstimate of 1.1 percentage points of bias….The Commission (and others that have followed) used ad hoc reasoning to come up with a number….”

    Jacob Ryten, from the Canadian statistical office, wrote in the same vein: “Without the guesstimates, the Commission Report was just another dry, academic study to be perused by professionals… Conversations with Committee members suggest that some, at least, were ill at ease themselves with guesstimates…. My personal preference is to resist the seductive blandishments of politics and politicians….”

    Jack Triplett chided the Report as succumbing “to the lure of political statements in its choice of language to describe the effect of CPI measurement errors on Social Security expenditures…. Professionals at any rate, should understand that improving the accuracy of the CPI is not the same thing as improving the basis for allocation to the dependent population….”

    • Winston
      Dec 2, 2019 at 10:06 am

      Of what possible real use is a CPI manipulated by [pull it out of your ass] hedonics and [can’t afford steak, buy chicken] substitution if it doesn’t actually reflect the increase in cost of living?

      It was ENTIRELY designed to lie. Also, as pointed out in Greenspan’s Bubbles, the government even uses that garbage figure to lie to ITSELF. So, we have manipulated garbage data being fed into simplistic garbage models based upon simplistic garbage monetary theory and the results used to centrally plan the cost of money. What could possibly go wrong?

  14. Iamafan
    Dec 2, 2019 at 9:46 am

    Since bank holding companies are considered people, albeit very special ones, then now I understand why the Fed does hedonic adjustments to the IOER.

    Probably applies to their ever expanding balance sheet, too.

  15. Anon1970
    Dec 2, 2019 at 10:11 am

    I received my benefits statement from the Medicare folks a few days ago. My net monthly Social Security benefit in 2020 (after Medicare deductions) will be less than it was in 2014, even though the gross benefit before deductions has gone up. 85% of the gross benefit is Federally taxable.

    2018 was the first year I was subject to a Required Minimum Distribution from my IRA and its impact on my Medicare premiums will show up starting in 2020. It makes me wonder whether I would have been better off limiting my IRA contributions to the amount needed to get the employer match.

    • Petunia
      Dec 2, 2019 at 10:29 am

      You are bringing up a good point which many don’t get or know about. The wealthier you are in retirement the more it’s going to cost you for medicare and the more they will tax your SS benefit. Saving outside the system is starting to look a lot better now.

      • RD Blakeslee
        Dec 2, 2019 at 1:23 pm

        Petunia, doing everything I reasonably can “outside the system” has been my way of life for decades.

        • Zantetsu
          Dec 2, 2019 at 2:57 pm

          That’s fascinating.

    • Iamafan
      Dec 2, 2019 at 11:26 am

      Your Medicare Part B is subject to Income Related Monthly Adjustment Amount (IRMAA). Medicare uses the modified adjusted gross income reported on your IRS tax return from 2 years ago. In 2019, unless you made above $170,000 filing jointly or above $85,000 filing individual, you won’t see any difference in your Schedule B monthly premiums (2019 is $135.50 per month. 2020 is higher).

      By the way, if you are already in RMD, then you are at least 70 1/2, and even if you are still working, You can no longer contribute to a TRADITIONAL IRA starting in the calendar year you reach 70 1/2 years of age. If you have a younger spouse, then you can contribute to them.

      However, 401k, SEP and ROTH IRA rules are different and allow for contributions for above 70 year olds. So since your employer has a match, then this may be more appropriate to you.

      I know this is painful and understanding so many details get harder with age. I think the operational word here is DEFERRED TAXES. It will still come to bite us at old age.

    • flashlight joe
      Dec 2, 2019 at 2:02 pm

      “It makes me wonder whether I would have been better off limiting my IRA contributions to the amount needed to get the employer match.”

      The employer match is the only reason to get an IRA. Otherwise, just buy stocks or a stock fund and hold them till “retirement”. Lower income taxes on dividends. No income tax on capital gains until you sell, and capital gains are taxed less than wages.

      Bond interest income is taxed same as wages, so keeping bonds in an IRA is probably OK, tax wise.

      Biggest problem with IRA’s is you lose control of your money and more people have positioned themselves between you and your money so they are take a piece of it every day.

      I have to laugh, though, at how the IRA was originally sold as away to defer taxes, and the claim was that your money would grow faster by delaying taxes. Now the Roth IRA is being sold as a way to pay taxes now and avoid them later, because THAT will result in more retirement money.

      The real government goal is to take your spending money away from you and redirect it into the financial markets. The real goal of the financial businesses is to take possession of your money and start skimming.

      • Anon1970
        Dec 2, 2019 at 7:36 pm

        A few years ago, about 5% of seniors on Medicare were subject to premium surcharges. Now it is up to about 7% and I have little doubt that this percentage will increase in coming years as government inflation calculations lag the real world. Premium surcharges were introduced in 2007 but the first inflation adjustment did not apply until 2020 for MAGI earned starting in 2018. In the land of $30 haircuts and 1 bedroom apartments renting for $3,800 per month, $87,001 income for an individual (where the surcharges start to kick in) is not very much.

        I guess the financial writers pushing IRAs as a vehicle to defer taxes aren’t paid very much.

        • Iamafan
          Dec 2, 2019 at 10:20 pm

          I wouldn’t worry about the part B premiums. It’s the part D and medigap that increased without surcharges effective 2020.

          If you are worried about RMDs and ability to fund beyond 70+, rethink Roth, SEP IRA, and 401k since these plans have their own rules.

  16. freewary
    Dec 2, 2019 at 10:54 am

    Stop agonizing over price inflation of things people buy. It’s a diversion.

    The most important metric is MONETARY inflation – the number of dollars in circulation aka M3, which according to shadow stats has been growing about 5% per year and recently started increasing faster due to repo.

    If the dollar supply is growing >= 5% per year and your investments are compounding at a rate lower than that you are getting poorer.

  17. Max Power
    Dec 2, 2019 at 11:57 am

    Not only does the current Camry have more horsepower, is more fuel efficient and has a bunch of important safety features than the 1990 model but it is also significantly larger.

    Therefore, let’s not get too hung up on model names.

    If one was to compare two similar cars across the 30 years then you should probably compare the 1990 Camry to the current Corolla (and even then you’ll find that the current Corolla is a larger vehicle then the 1990 Camry!).

    To some degree the hedonics stuff does make sense.

  18. Iamafan
    Dec 2, 2019 at 1:06 pm

    I wonder what kind of hedonic adjustments will be made when all the pension and retirement funds burst due to very low interest rates. Hopefully, there is a way out.

  19. Dec 2, 2019 at 1:07 pm

    Autos used to be two tons of steel. The myth that two lighter vehicles in a collision mitigates the damage is discounted by users (and manufacturers) migrating back to SUVs which crush a subcompact. Some lawyers seize on this in wrongful death suits against drivers of oversized rigs. Hedonic improvements to brakes and steering and suspension are lost on these behemoths. I suppose if you can buy medical transport insurance that reflects hedonic improvement to your health insurance premiums whether you can afford it or not.

    • nhz
      Dec 2, 2019 at 4:36 pm

      Also it is a given that – on average – people who drive a “safe car” (whether small/light or big/heavy) behave more recklessly on the road, which can completely annihilate the objective safety advantage. This also applies to many SUV drivers because they feel relatively safe.

      • RangerOne
        Dec 3, 2019 at 3:21 pm

        There are so many variables it is nearly impossible to say what percentage each factor has in making 1 car safer than another.

        Clearly drivers are a big factor. Car types and manufactures known for higher safety tend to statistically have notably fewer deaths. But of course these are the types of cars likely to be bought by people who drive safer and care more about avoiding accidents.

        Than say a teenager who drivers like a lunatic and does think about death as a possible consequence of driving.

    • RangerOne
      Dec 3, 2019 at 3:36 pm

      Lighter cars will cause less damage in many types of collisions. That is just physics. But of course when it comes to cars hitting cars all that matters is relative weight and how they collide.

      For instance two light cars in a head on collision going at equal speeds is equivalent to both hitting a brick wall… but side impacts and other types of collisions where the speed of only 1 vehicle matters are directly effected by vehicle weight.

      Also newer cars in theory mitigate potential damage to passengers by creating smarter crush zones in cars to distribute the force and damage the car in a manner that will protect the cabin in more cases.

      To your point about SUVs and “trucks” being what most people by now though. I would never put my family in a compact car in the US. You want to be in a car relatively larger or equal to most cars on the road to deal with the reality that getting hit by a larger car is bad for the smaller one in many cases.

      Better breaks, steering and suspension logically should improve a persons ability to drive defensively. By improving a cars reaction time to various inputs or helping to sustain more intense maneuvers without say rolling over. But good luck directly measuring the impact of that on mortality in a given car.

  20. Jdog
    Dec 2, 2019 at 1:18 pm

    Government lies. It lies all the time, and it lies about everything. Government is run by immoral psychopaths who’s purpose in life is to exploit the citizenry. Wise up.

  21. c smith
    Dec 2, 2019 at 1:32 pm

    Iron law of inflation: If government provides it, finances it or regulates it, it inflates at a faster rate. Essentially the difference between administered prices and those discovered in a marketplace. As Wolf surmises, hedonic adjustments “paper over” government’s effectively subsuming more of the real economy each year.

    • nhz
      Dec 2, 2019 at 4:41 pm

      in my country this inflation includes government wages, that have been rising lately at way over official CPI. Makes sense, as governments (in Europe) have access to all the free money they want and can crowd out everything outside the public sector AND keep their own employees / voters happy, for now. You have to become a government worker to keep your living standard, or hope to elevate to the 1% level. So from this side governments are also subsuming more of the real economy each year.

  22. curiouscat
    Dec 2, 2019 at 2:22 pm

    “Most of economics can be summarized in four words: “People respond to incentives.” The rest is commentary.”
    ― Steven E. Landsburg

  23. Iamafan
    Dec 2, 2019 at 2:25 pm

    “The Federal Reserve is considering introducing a rule that would let inflation run above its 2 per cent target, a potentially significant shift in its interest rate policy.”

    Hmmm. What could this possibly mean other than printing a lot of money and keeping interest rates low?

    • Dec 2, 2019 at 3:04 pm

      Yes but what is there zero limit before they drop rates again?

  24. Sandy Toes
    Dec 2, 2019 at 3:43 pm

    Interesting report on the impact from the loss in purchasing power as measured by:

    A- increases in the official“ CPI published by the Feds vs.
    B- loss in the value of the US dollar.

    Helpful to see how the Feds use “Hedonic Quality Adjustments“ to justify their CPI calculations.

    Surprisingly, this article does not include the impacts of:
    1- globalization on real wages,
    2- wage inflation on income taxes and
    3- artificially low interest rates on people’s interest income and on people’s behaviors (take on more risk and/or debt).

    The bottom line is that:
    1- In general, real wages have been flat over 20 yrs and interest income plummeted.
    2- real cost of living has gone up significantly (See example of the Camry).
    3- quality & value of goods have generally increased.
    4- we have more debt slaves

    The loss in value of the dollar, globalization and low rates help explain why the official inflation is reportedly so low, when living stds have generally declined.

    • sierra7
      Dec 3, 2019 at 12:11 pm

      Sandy Toes:
      “1- In general, real wages have been flat over 20 yrs and interest income plummeted.
      2- real cost of living has gone up significantly (See example of the Camry).
      3- quality & value of goods have generally increased.
      4- we have more debt slaves”
      That’s the plan and its working marvelously!!!!

  25. unit472
    Dec 2, 2019 at 6:12 pm

    Hedonics is a double edged sword. I remember my old Nokia cellphone. Cost about $50 and wasn’t digital. It worked fine as a phone though and, since smart phones weren’t then available, I was happy with it but after a few years I needed a new battery but Nokia didn’t make them anymore so I had to buy a new cellphone or rather be given one with my new ‘contract’ from Alltel.

    I still have some perfectly good TVs including a vintage Philco Predicta B/W set that is a classic in industrial design but useless as a TV now since TV is now digital too and broadcast TV obsolete. I still display it my living room though as an objet d’art.

    Not sure I agree about cars though. May depend on your starting point though. A 1990 Camry may have been ‘good enough’ but if you go back 50 years or so, cars were far more dangerous and upkeep expensive even for a relatively new car.

    Oil change every 3,000 miles plus a quart or so every now and then once it started leaking. New spark plugs and tune up every 12,000 miles or so. New battery and tires every couple of years. If you had a big car with a V-8 you were doing good if you got 10 mpg. Even price, in gold or silver terms, indicate a modern car is a better value. A basic Ford Mustang with a V-8 289 in 1968 was about $2700. Today a 4 cylinder Mustang is about $27,000 but it will have A/C, electric windows and much else that is superior to that old Mustang. Gas has increased by that same factor of 10 (more in California) as has housing but the quality of neither has not shown much improvement. Its wages that need to be increased. I made $2.00 an hour as a 16 year old laborer on a construction site during the summer of 68. Show me the teen today with a $20/hour summer job today!

    • NONAME
      Dec 3, 2019 at 2:15 am

      I think there is some sort of “converter” box you can use to get that TV to work today. You should look into it since you have it on display.

      FYI Mustangs are on sale for $20k! Cheap! But who can see out of one? I’ll pass.

      Very few your age recognize the wage disparity issue (hence the hilarious “OK Boomer” meme), so props to you :)

      • NONAME
        Dec 3, 2019 at 2:20 am

        Ignore my “converter” box comment; your TV is older than I pictured!

    • Frederick
      Dec 3, 2019 at 12:45 pm

      True dat I was making 2.90 and hour plus pretty decent tips as a high school freshman working in a lumberyard Sunday’s I did odd jobs at the senior housing where my grandmother lived Good times especially the music and the girls

  26. Brant Lee
    Dec 2, 2019 at 8:05 pm

    Hopefully, no one is laughing at the high school and college grads being released to the wolves these days. In the old days, the advice would be “If you work hard, you will succeed”.
    Today the advice should be “If I were you, don’t get married and/or have kids, there are a thousand targets on your back. On your own, you may have a chance.”

  27. Amused
    Dec 2, 2019 at 8:25 pm

    Gotta read all the comments and it a huge waste of time. Lol

    • Frederick
      Dec 3, 2019 at 12:46 pm

      True but time has no value anymore anyway due to negative interest rates right?

  28. FromKS
    Dec 2, 2019 at 9:11 pm

    Wolf,

    I really want to know the impact these adjustments are having on rent. Are there any places where the Fed publishes the Hedonic quality adjustments, or do they leave people to track real prices, CPI inflation and then compute themselves.

    Thanks,

    • Dec 3, 2019 at 12:05 am

      I’ve been trying to get the pre-hedonically adjusted data. Unsuccessful so far. But this will be very interesting if I can get the data, comparing over time, by how much these hedonic adjustments have impacted CPI in various categories. There are other adjustments too, such as “substitution,” so once you get into it, it gets complicated in a hurry.

  29. Julius Baer
    Dec 2, 2019 at 9:37 pm

    In a house of gold the clocks are of lead.

    • bungee
      Dec 3, 2019 at 3:35 am

      google told me its a swiss proverb but nothing else.

      what does it mean? riches stagnate or something like that?

  30. Dec 2, 2019 at 10:31 pm

    The world isn’t so much “in” a depression
    as it is depressed — old and young alike.

    “Reggie In China” s01e02 (Beijing) details
    the life of ZTO’s package-delivery men in Beijing.

    They sleep on plywood, in bunkbeds, 14 to a room;
    money is sent home to their rural wives-n-children.

    This makes deliveries amazingly good+cheap+fast
    ( compared to anywhere else ) but it can’t last;
    such “family values” will soon be gone, Americanized,
    no matter how many proverbial “(fire)walls”, and
    surveillance systems Beijing might employ.

    Instead of “Mak[ing] America Great Again”,
    some guys try to turn back the clock by finding
    desperate women in secluded corners of the world.

    It doesn’t work, of course.

  31. MC01
    Dec 3, 2019 at 2:21 am

    I hope nobody gets it the wrong way, but after reading most of the comments here I have understood what a hard time the first human being who rubbed two sticks together to produce fire must have had.

  32. Unamused
    Dec 3, 2019 at 9:18 am

    CPI is of very limited value as an indicator of the cost of living, which has been surging even as CPI has been mostly steady. CPI is mostly useful as a distraction, a way of reassuring the peeple that they’re not getting screwed when in fact they’re getting royally screwed, and more so all the time.

    ‘Hedonic quality adjustment’ is just another way to promote the illusion and keep the victims distracted, unable to reverse or oppose their subjugation so they can be screwed some more. Most official and media messaging has evolved to serve this purpose on just about anything that touches on personal economics and finance. Because it works.

  33. Dec 3, 2019 at 2:55 pm

    Wolf isn’t the only one writing about these issues any more.

    CBS news wrote an article about how most jobs today are the very low wage variety – and worked by full-time adults, not highschool teens: https://www.cbsnews.com/amp/news/minimum-wage-2019-almost-half-of-all-americans-work-in-low-wage-jobs/

    There are tons of mainstream articles today on homelessness and high housing costs as well.

    I think we’re starting to see a theme develop for the coming election year. This is a very different theme than played 4 years ago.

    I’m curious how it’ll affect future policy and stock markets – it’ll certainly be a theme change from the story stocks and tech unicorns of yesteryear … the last long-term macro winner from 2012 onward was tech, and we haven’t quite worn out that cycle yet.

  34. RangerOne
    Dec 3, 2019 at 3:13 pm

    I never really hear anyone talk about situations were more or less taxation can be a wash.

    If the cost of goods and paying for daily life mostly comes down to competition for resources then a tax that evenly impacts all people should have minimal impact.

    If a lot of money is taxed then that just means everyone earns less and the cost of goods has to come down to what people are able or willing to pay.

    Stuff only gets out of wack if taxation disproportionately effects people competing for the same goods, or things like excess borrowing distort what people are able/willing to pay for goods.

    I would say the beauty of taxation is it allows communities to pool resources in an equitable manner that in a perfect setup doesn’t distort the relative income levels of those taxed. How much money I make is irrelevant. It only matters how much money I make relative to those able to compete for the things I want.

    • Unamused
      Dec 3, 2019 at 3:44 pm

      Somebody’s got to pay for all that corporate welfare, and you certainly couldn’t tax corporations for it, because that would mean you’re taxing the hardworking corporations to bail out the lazy freeloading corporations, and that would be socialism.

    • Dec 3, 2019 at 8:02 pm

      Taxation isn’t a wash, it’s a level of how much of our resources are directed by government.

      In a capitalist society, all production focuses around money. If the proportional earnings of you and people you compete with for the same goods goes down, production of those goods will also decrease as companies redirect to more profitable ends.

      Effectively, all those people end up with less goods to split, while resources, production and jobs are redirected by those now controlling a greater share of that money.

  35. Chris
    Dec 4, 2019 at 10:11 am

    My question is: do they EVER account for fact clothing, furniture, building design, appliances etc. are often garbage, or at least uglier, and less well designed compared to “good old days”? Yes anything that is high tech gets better and better. But anything partially hand crafted or using more natural materials etc. or low tech is in many cases worse. Or do they account for lack of service with automated customer service, self check outs etc. If the answer is no, then it’s not evenhanded and totally rigged.

  36. WSKJ
    Dec 4, 2019 at 11:57 am

    Thx for this hard-hitting review of CPI, COLA, and so on, Wolf.

    I don’t use consumer electonics enough to have a good feel for the “hedonic” change wrt price, and I suspect that that would be a tough one for many of us.

    Something on which I do have a somewhat informed opinion: spices. A decade ago, I could buy a small jar of whole nutmegs without going to a specialty shop. Fred Meyer, Safeway, most of the big chain groceries, in my neck of the woods , carried these, and they were always high quality.

    Now I do not find these in any of my nearby big-chain groceries. They have disappeared in the last few years. What is available?: small jars of ground nutmeg, of a darker color than the color of the ground nutmeg of a decade ago (possibly adulterated ? to know would require lab tests).

    I’m guessing that Amazon sells whole nutmegs for a third-party importer. Those who shop at specialty purveyors can no doubt purchase these. Do I get to count my investment of time spent to track these down, as part of my “new purchase price”?

    Spices have been an important aspect of global economy since the heyday of the Roman Empire, and earlier, so I surmise that availability of top quality spices serves as some index of well-being. I can live without whole nutmegs, but I don’t want to. That little surge of pleasure that I feel, when I take the last jar of whole nutmegs down from the kitchen cupboard, is priceless.

    • WSKJ
      Dec 4, 2019 at 12:04 pm

      Currently available ground ginger, as well as ground nutmeg, is of a darker color. One must consider over-heating in their processing, as well as adulteration (perhaps just from big dusty warehouses), as possible causes of the darker colors of many ground spices.

      Ditto all remarks on declines in quality of what’s available to the middle class consumer of the U.S..

  37. Douglas O
    Dec 7, 2019 at 5:17 pm

    I just discovered Wolf Street Report today through a link on Chuck Collins inequality.org. I’ve been getting most of my Wall Street casino news from another very informative site Wall Street On Parade. They have been all over the FED pumping trillions into the report market, over $3 trillion since September 17 when the sh*t hit the fan in the markets. I will incorporate Wolf Street into my reading list. A recent http://www.wallstreetonparade.com article on the subject. Thanks, Doug.https://wallstreetonparade.com/2019/11/the-disturbing-advance-men-for-the-feds-3-trillion-and-counting-wall-street-bailout/

    • Dec 7, 2019 at 7:44 pm

      Douglas O,

      I hope you understand that repos unwind, and that this $3 trillion or whatever is NOT what the Fed “pumped” into the repo market. Most of the Fed’s repos are overnight repos. They unwind the next day and reverse. It’s like I lend you $100 today and tomorrow you pay me back $100.05, and tomorrow I lend you $90 and day after tomorrow, you pay me back $90.05…. And then there are some 14-day repos that unwind after 14 days. And there are two 42-day repos that will unwind early next year.

      Total amount in repos on the Fed’s balance sheet as of Wed Dec 4 was $209 billion. So what the Fed “pumped” into the repo market was $209 billion, and not $3 trillion or whatever.

      This article explains what the Fed had on its balance sheet as of Dec 4:
      https://wolfstreet.com/2019/12/05/fed-goes-hog-wild-with-t-bills-but-repos-drop-from-a-month-ago-and-mbs-shrink-by-22-bn/

      And here is the first chart of that article, concerning the repos on the Fed’s balance sheet. Note that repos on the Fed’s balance sheet are actually down from a month ago:

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