So if the economy is so great.......

[Yekcidmij]

How incredibly false. Not the topic of the thread but the falsehood just can't be left unresponded to.

View attachment 263014


View attachment 263015

I agree with your general sentiment that the economy has been recovering, at least in terms of output and employment since 2009 (though I think it's mostly, if not all, unrelated to which party is in the White House). But one could argue that the economy wasn't operating at full capacity, where full capacity = real potential GDP, until the end of 2017:

So yes, the economy has been "recovering" ever since the end of 2009, but it never really recovered to full capacity until 2017.

FRED Graph | FRED | St. Louis Fed

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[TLK Valentine]

The last six years of of Obama's term, the Republicans had the house. They obstructed. It would have been even better.

And the first two years of Donald's term, the Republicans had both houses. They enabled. It should have gotten much better.

It did not. Donald kept his predecessor's good trend going, but failed to improve on it.

 

[iluvatar5150]

I agree with your general sentiment that the economy has been recovering, at least in terms of output and employment since 2009 (though I think it's mostly, if not all, unrelated to which party is in the White House). But one could argue that the economy wasn't operating at full capacity, where full capacity = real potential GDP, until the end of 2017:

View attachment 270408

So yes, the economy has been "recovering" ever since the end of 2009, but it never really recovered to full capacity until 2017.

FRED Graph | FRED | St. Louis Fed

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The gap grew more and more narrow along that entire time frame.

 

[Yekcidmij]

The gap grew more and more narrow along that entire time frame.

Ok... and...

 

[ThatRobGuy]

I really wish people would quit trying to use the unemployment rate as a barometer of "economic well-being".

That one particular metric, alone (without consideration of other factors), isn't nearly as important as some depict it as, and those who cite it as some sort of evidence of "how great the economy is" show a real lack of depth with regards to a real understanding of the economy unless they're evaluating it in conjunction with overall wage data as well as the individual CPI inflation rates in all of the various sectors.

For example, if you take 100 people, and consider these two scenarios:

1) 2 people making $400k per year, 8 people making $100-150k per year, 60 people making $50-100k per year, 10 people making $50-100k per year, 10 people making $25-50k per year, 2 people making < $25k per year, and 8 people unemployed.

2) 1 person making $5 million per year, 2 people making $750k per year, 10 people making $100-150k per year, 10 people making $50-100k per year, 50 people making $25-50k per year, 24 people making < $25k per year, and 3 people are unemployed.


Even though scenario #2 has a much lower (less than half) unemployment rate of scenario #1, scenario #1 represents a much healthier economy when things like rent CPI are factored in.



Or, a more succinct way of putting it, replacing 1 $60k job with two 2 minimum wage jobs technically lowers the unemployment rate, but doesn't improve overall economic health of the nation.

 

[Ken-1122]

I really wish people would quit trying to use the unemployment rate as a barometer of "economic well-being".

That one particular metric, alone (without consideration of other factors), isn't nearly as important as some depict it as, and those who cite it as some sort of evidence of "how great the economy is" show a real lack of depth with regards to a real understanding of the economy unless they're evaluating it in conjunction with overall wage data as well as the individual CPI inflation rates in all of the various sectors.

For example, if you take 100 people, and consider these two scenarios:

1) 2 people making $400k per year, 8 people making $100-150k per year, 60 people making $50-100k per year, 10 people making $50-100k per year, 10 people making $25-50k per year, 2 people making < $25k per year, and 8 people unemployed.

2) 1 person making $5 million per year, 2 people making $750k per year, 10 people making $100-150k per year, 10 people making $50-100k per year, 50 people making $25-50k per year, 24 people making < $25k per year, and 3 people are unemployed.


Even though scenario #2 has a much lower (less than half) unemployment rate of scenario #1, scenario #1 represents a much healthier economy when things like rent CPI are factored in.



Or, a more succinct way of putting it, replacing 1 $60k job with two 2 minimum wage jobs technically lowers the unemployment rate, but doesn't improve overall economic health of the nation.

Are you suggesting the recent drop in unemployment is the result of more lower paying jobs and fewer higher paying jobs?

 

[Yekcidmij]

Are you suggesting the recent drop in unemployment is the result of more lower paying jobs and fewer higher paying jobs?

It's easy to look at other measures than the pure unemployment rate. For example, here is the median real wages time series (Fred knows everything):

https://fred.stlouisfed.org/graph/fredgraph.png?g=lOZB

 

[Ken-1122]

It's easy to look at other measures than the pure unemployment rate. For example, here is the median real wages time series (Fred knows everything):

View attachment 270547

https://fred.stlouisfed.org/graph/fredgraph.png?g=lOZB

So according to the graph, real wages are at record high?

 

[ThatRobGuy]

Are you suggesting the recent drop in unemployment is the result of more lower paying jobs and fewer higher paying jobs?

Yes, that does account of a large amount of it.

The Frightening Rise In Low-Quality, Low-Paying Jobs: Is This Really A Strong Job Market?

 

[ThatRobGuy]

So according to the graph, real wages are at record high?

Looking at "real wages" is also a misleading metric if you're not taking into account a couple of key factors.

The most important (for lower to lower-middle wage workers) is the Rent CPI inflation rate.

You can have a person who, when looking at their income from 2015-2020, have had wage increases that have outpaced the overall inflation rate. However, when you look at the Rent CPI inflation rate, it's clear that even though they technically "make more", they still have less buying power after all critical expenses are covered.

For instance, the bottom 20% of earners spend 40% on their rent:

So, if the rent CPI inflation rate is high (which it is), a modest increase in wages isn't going to offset that and they're going to end up with less buying power overall.

Over the past 5 years, Rent CPI is up over 20%.

Meaning, the apartment a person paid $900 month for 5 years ago, they're paying $1080 a month for now.

If a person had a take home pay of $1400/month in 2015 dollars, and was paying $900/month for rent, they were in better shape than a person taking home $1500/month in 2020 dollars, but paying $1080/month in rent.

 

[mark46]

Again, if the economy is so great, why is Donald cussing out Jeremy Powell on Twitter for not doing his bidding and lowering the rates to zero or lower

because Trump is ignorant of anything related to economics and the economy

 

[Ken-1122]

Yes, that does account of a large amount of it.

The Frightening Rise In Low-Quality, Low-Paying Jobs: Is This Really A Strong Job Market?

There has always been low-quality, low paying jobs. According to "factcheck.org" though not the record high of the 1970's, real wages are up to the highest we've seen in the past 40 years.
Are Wages Rising or Flat?

 

[Ken-1122]

Looking at "real wages" is also a misleading metric if you're not taking into account a couple of key factors.

The most important (for lower to lower-middle wage workers) is the Rent CPI inflation rate.

You can have a person who, when looking at their income from 2015-2020, have had wage increases that have outpaced the overall inflation rate. However, when you look at the Rent CPI inflation rate, it's clear that even though they technically "make more", they still have less buying power after all critical expenses are covered.

For instance, the bottom 20% of earners spend 40% on their rent:

So, if the rent CPI inflation rate is high (which it is), a modest increase in wages isn't going to offset that and they're going to end up with less buying power overall.

Over the past 5 years, Rent CPI is up over 20%.

Meaning, the apartment a person paid $900 month for 5 years ago, they're paying $1080 a month for now.

If a person had a take home pay of $1400/month in 2015 dollars, and was paying $900/month for rent, they were in better shape than a person taking home $1500/month in 2020 dollars, but paying $1080/month in rent.

Okay I see; you’re just looking at rent only, rather than the entirety of inflation. The problem with looking only at rent over the past 5 years is when the market crashed, because the way the housing market suffered, rent actually went down in most places. Landlords saw their property taxes drop considerable, were able to purchase investment properties on the cheap and were able to afford to be more competitive in the rental market during this time. During this time; transportation costs, food, healthcare, automobiles and all the other expenses continued to rise at it’s usual pace. Once the market recovered, the housing market recovered housing prices rose quickly, property taxes rose at a drastic rate, and rent went up to the level it would have been had it never experienced the drop during the recession. And of course during this time transportation costs, food healthcare, automobiles, and all the other expenses had no reason to rise as fast as rent/housing prices because they didn't experience the 6 year drop in prices.

So to take a myopic view of rent over the past 5 years and use that to judge the economy without taking into consideration why rent prices rose drastically over the past 5 years is a false comparison IMO.

 

[mark46]

There has always been low-quality, low paying jobs. According to "factcheck.org" though not the record high of the 1970's, real wages are up to the highest we've seen in the past 40 years.
Are Wages Rising or Flat?

Workers are getting a lower percentage of GDP than decades ago. The rich are indeed getting richer. However, after a low in 1996, real wages have been constantly increasing. And yes, for the past few months, the lower end has been increasing more than the higher end of wage earners.

The trends since 1996 don't in any way offset the increasing wealth disparity in the US or the decreasing mobility for lower skilled workers.

 

[ThatRobGuy]

Okay I see; you’re just looking at rent only, rather than the entirety of inflation. The problem with looking only at rent over the past 5 years is when the market crashed, because the way the housing market suffered, rent actually went down in most places. Landlords saw their property taxes drop considerable, were able to purchase investment properties on the cheap and were able to afford to be more competitive in the rental market during this time. During this time; transportation costs, food, healthcare, automobiles and all the other expenses continued to rise at it’s usual pace. Once the market recovered, the housing market recovered housing prices rose quickly, property taxes rose at a drastic rate, and rent went up to the level it would have been had it never experienced the drop during the recession. And of course during this time transportation costs, food healthcare, automobiles, and all the other expenses had no reason to rise as fast as rent/housing prices because they didn't experience the 6 year drop in prices.

So to take a myopic view of rent over the past 5 years and use that to judge the economy without taking into consideration why rent prices rose drastically over the past 5 years is a false comparison IMO.

That one particular factor is arguably the most impactful when it comes to lower wage employees.

If you look at the how the CPI inflation is calculated, it's based on some premises that aren't necessarily reflective of how lower income people live or are able to budget.

Basically, the use weighted values that are their "best attempt" at reflecting what percentage of expenditures are being used in which sector.

So, as one would expect, transportation is given a higher weight when calculating than say, jewelry or footwear purchases. (as it should be)

The issue is that the weighted value is calculated from an average, and that average isn't true for the bottom 20% of earners.

So if a person's rent is 60% of their budget expenditure, and it has a CPI inflation rate pacing at 18-20%, it would take some substantial raises as well as drastic CPI reductions in every other sector in order for them to actually see a benefit.


Or, a more plain English way to put it. If the one thing that was already chewing up 60% of your income just increased in price by a huge amount, the fact that Clothes, TVs, and Potato Chips are down 3% isn't going to soften that blow. You need to have enough money leftover after your critical expenditures are covered in order to capitalize on the price index reduction in all of the other sectors.

Looks like you and I have had this exact same conversation before a few months back where I provided some much more detailed breakdowns of a lot of the numbers (if anyone else wants to read it, they can click the link and check it out so I don't have to post all that stuff twice)
US billionaires paid lower tax rate than working class in 2018

 

[ThatRobGuy]

There has always been low-quality, low paying jobs. According to "factcheck.org" though not the record high of the 1970's, real wages are up to the highest we've seen in the past 40 years.
Are Wages Rising or Flat?

Like I said before, wages (even when adjusted for inflation) can rise but still end up with a situation where a person is worse off then they were before.

The example I used in the thread from a few months ago when we discussed the same thing was this:

Let's say you have a person who makes $15k/year in 2000 as we'll use that as a starting point.

Adjusted with the rate of inflation, in 2019, that would be like making $22,365.77.

According to the US Bureau of Labor statistics, the formula for calculating the rent inflation rate based on the consumer pricing index is:

Therefore, an apartment that was $700/month in 2000, is roughly $1,250 in 2019.

Rent that's $1250/month has a larger negative financial impact on a person making $22,365 in 2019 than $700/month rent did on a person only making $15,000 in 2000 when you consider pricing inflation on other items (like transportation, food, etc...)

Even if their wage increases outpaced inflation a few percent each year, they'd still be a little worse off in terms of buying power leftover after rent is covered.

...and the other aspect of it is the cost of utilities that's not included in the core CPI calculation due to price volatility. Many of the years between 2000 and now, utility price increases have outpaced inflation and only two years where the 'real cost' (adjusted for inflation) of utilities went down.