Why Are We (Still) So Angry About Inflation?

Great pleasure to be here, mate.

I think you have, uh, you might frame the issue a little bit differently maybe than more I did in the introduction.

Please go ahead.

Yeah.

I don't think I'm trying to convince or make the case for anything.

Uh, I'm trying to understand the world that we find ourselves in.

So, uh, what is that world? It's, uh, let me put a couple of facts out there.

Um, the first is that the word affordability is clearly very much on the table.

It's in the air.

It resonates with regular people.

Politicians are winning elections running on it.

The president's approval is hurting because he's seen as weak on it.

So concerns about affordability are absolutely top of mind.

Second fact, if you stopped any economist in the hallway outside their office and said, "I want you to define affordability.

Affordability is a word, but if I were gonna measure it, how would I measure it?" And they'd say, "Well, it's how much stuff you can afford." You say, "Okay.

Well, what's that?" It would be how much income you get relative to the price of stuff.

So it's how much stuff you can afford would be therefore a measure of real income, inflation-adjusted income.

We could differ about whether you wanna think about disposable income or pre-tax income or gross domestic product, which also in, or, or, and whether we're thinking about labor income or capital income, but it would all be some version of income relative to the cost of living.

Well, income relative to the cost of living is rising.

Um, it...

That's not a particularly courageous statement.

It's almost always rising almost everywhere, and that's because since the Industrial Revolution, the story of the world is one of economic growth.

You could pick a couple of points in time and a couple of series, like you could say, "Well, over the past six months, average wages adjusted for inflation have fallen," and I would concede the point, but I'd say the affordability discourse began, began before that.

So how is it that we have this word used by the general public where everyone is convinced there is an affordability crisis, and the translation of that word by economists would point you towards data that says the opposite is true? Now, by the way, economists might say, "I would like it if more stuff were more affordable-"

Yeah

Great pleasure to be here, mate.

I think you have, uh, you might frame the issue a little bit differently maybe than more I did in the introduction.

Please go ahead.

Yeah.

I don't think I'm trying to convince or make the case for anything.

Uh, I'm trying to understand the world that we find ourselves in.

So, uh, what is that world? It's, uh, let me put a couple of facts out there.

Um, the first is that the word affordability is clearly very much on the table.

It's in the air.

It resonates with regular people.

Politicians are winning elections running on it.

The president's approval is hurting because he's seen as weak on it.

So concerns about affordability are absolutely top of mind.

Second fact, if you stopped any economist in the hallway outside their office and said, "I want you to define affordability.

Affordability is a word, but if I were gonna measure it, how would I measure it?" And they'd say, "Well, it's how much stuff you can afford." You say, "Okay.

Well, what's that?" It would be how much income you get relative to the price of stuff.

So it's how much stuff you can afford would be therefore a measure of real income, inflation-adjusted income.

We could differ about whether you wanna think about disposable income or pre-tax income or gross domestic product, which also in, or, or, and whether we're thinking about labor income or capital income, but it would all be some version of income relative to the cost of living.

Well, income relative to the cost of living is rising.

Um, it...

That's not a particularly courageous statement.

It's almost always rising almost everywhere, and that's because since the Industrial Revolution, the story of the world is one of economic growth.

You could pick a couple of points in time and a couple of series, like you could say, "Well, over the past six months, average wages adjusted for inflation have fallen," and I would concede the point, but I'd say the affordability discourse began, began before that.

So how is it that we have this word used by the general public where everyone is convinced there is an affordability crisis, and the translation of that word by economists would point you towards data that says the opposite is true? Now, by the way, economists might say, "I would like it if more stuff were more affordable-"

Yeah