Where there is blood, it conquers: The truth about inflation in America

By ordinary standards, the US economy continues to do well. Unemployment has been below 4% for 27 months and inflation has remained very low, though slightly above the Federal Reserve’s 2% target. But saying that would get a lot of negative reactions; Some people get angry.

Much of that reaction is partisan. Donald Trump describes Friday’s jobs report, which shows the unemployment rate soared: Stay tuned! – From 3.83% to 3.87%, “Terrible”And I’m sure many Americans believed him.

But it’s not all about party affiliation. Part of the rejection comes from readers who, however, are left-wing and say something like: “Well, maybe the economy is strong, but all the profits have gone to the people at the top.” Or “Official inflation may be low, but prices of basic goods like food and energy are outpacing wage growth.”

So I thought it was worth putting together some data to prove that these claims aren’t really true, and describe some new research that might help explain why so many people think they’re true.

Let’s start with the claim that recent growth has only benefited the rich. Many people don’t know this, but the truth is almost the opposite. After the pandemic, the wages of the lowest-paid workers rose significantly faster than the wages of the highest-paid workers, a phenomenon that David Autor, Arindrajit Dubey, and Annie McGrew call it an “unexpected abstraction.”

But you can say that wages are rising faster at the bottom, but inflation is hitting lower-wage workers harder. That is a valid objection. But how big is the problem? It turns out Bureau of Labor Statistics Contains test measures of inflation at different income levels.

Fully mapping these measures onto wage data would be a project for economists more experienced in these matters than I am, but I’ve done a quick and dirty version. The BLS publishes estimates of typical weekly earnings at the 10th, 50th, and 90th percentiles of the wage distribution, and also publishes estimates of consumer prices for the middle and upper quintiles of the income distribution (as of December 2023 only. ), which roughly correspond to

Yes, inflation is slightly higher for lower-income Americans, perhaps because they spend a higher proportion of their income on food and energy. But the difference in inflation has been drowned out by the difference in wage growth.

Therefore, the claim that low-income Americans have been hit hardest by inflation is not supported by the facts. Yes, America has a huge inequality problem, and I am a big supporter of efforts to make our society less unequal. But while the problem has not resolved itself, it has not worsened in recent years.

And yet, aren’t the prices of basic goods like food and energy rising much faster than wages? While it’s true that these types of items can have a relatively large impact on how inflation affects low-income people, the full answer may surprise you.

First, let’s look at how household food prices (groceries) compare to the average worker’s typical weekly income. Food prices were low relative to wages during the worst of the pandemic, then rose as the economy recovered and especially after Russia invaded Ukraine.

At this point, however, the purchasing power of the typical worker in terms of food is about the same as it was in early 2019, when, as I recall, a man named Trump was bragging about how great the economy was.

What happens to energy? The price of a gallon of gasoline fluctuates wildly on a typical weekly income (it also went up when Russia invaded Ukraine), but at this point it’s in the same range as it was in late 2010.

So the stories of Americans struggling to cope with skyrocketing prices for both public goods and basic commodities don’t match the data. Of course, some may believe that all data is falsified by the deep state; Private measures such as those provided by Trublation (which I suspect was a cryptocurrency-based project, um, actual inflation was higher than official reports) seem to be very similar to government data.

So why do so many believe otherwise? The answer may lie in a new report Ryan Cummings, Giacomo Fracaroli and Neil Mahoney, written for the brief book., a website I find incredibly valuable. Their report, titled “Bad News Bias in Gasoline Price Coverage,” shows that there are more television reports about gas prices when they are high than when they are low.

Like I said, gas prices fluctuate a lot. If people only knew about them when they were high, we shouldn’t be surprised if the public felt that gas prices were unusually high relative to wages, even when they weren’t.

Authors haven’t done the same exercise on food prices, but I have no doubt that the same phenomenon applies there. You’ve all heard that egg prices will skyrocket in 2022 (mainly due to the spread of bird flu); I know many people don’t know that prices fell even faster in 2023.

This bad news bias doesn’t necessarily reflect bias (Fox News, according to the Briefing Book article, is notable for its negativity). Much of this reflects the old adage: “If it bleeds, it leads.” (Refers to an adage repeated in the media about the success of violent or sensational news).

But why should this bias be worse now than in the past? I’m not trying to quantify this, but it’s clear that we’ve seen higher-than-usual price inflation following the Covid-19 pandemic. And given the bad news bias, this can lead to the perception that inflation is worse than it is.

Still, it’s food for thought: food that’s more affordable than you might imagine.

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