What the CPI Doesn't Tell Us

The sorts of economic commentators who are given the kind of media platform from which one can reach an appreciable audience are famously averse to any sort of long-term thinking about how the public is doing. They think in terms of quarters, not of decades--with the result that they tend to ignore long-term trends that are highly inconvenient from the standpoint of those who prefer to paint rosy pictures of how the economy has been doing.

Consider, for example, what we find when we use that most common inflationary measure, the Consumer Price Index (CPI). We see that if, when adjusted using the CPI, the median male income has had its ups and downs over the last half century or so, it has not risen appreciably--every rise followed by an economic downturn that knocks it back down so that any further "rises" are just a matter of years-long recovery, with wages likely to be barely back up to what they had been before the next "recession" knocks that income back down again, again and again.

Of course, this truth being inconvenient many a champion of the status quo dismisses the use of the CPI as producing an overly "negative" picture, "exaggerating" inflation, and so obscuring real gains, all while they suggest that many a gain may simply not register in the numbers. "What about your cell phone?" they say. "Hmmmm? Hmmmm? You didn't have that before so clearly you're better off and should shut up now, pleb."

Alas, there is a stronger case that, far from exaggerating working people's problems, the CPI itself produces an overly rosy picture of the situation. Perhaps the full value yielded by our electronics is not registered in the economic statistics (though I think such claims at best exaggerated), but there is also a vast range of other goods about which the same cannot be said. What does it actually cost to buy a home and keep it (paying the tax and maintenance and insurance), for example, or alternatively, rent a home--especially one in which parents can raise children decently, within tolerable commuting distance of a job that can pay for such a home? What does it cost to own and operate the vehicle they will use to make that commute (especially in the absence of a viable alternative in the form of public transport), or pay for health care, or cover the cost of supporting themselves without a collapse in their standard of living when they are too old to work at anything like their current job with its demands, or pay for a college education for their children? When we actually dig into these matters what we find is that, far from holding steady, the purchasing power of the median income has halved or worse with respect to every one of these essentials over the past half century--the public has got significantly poorer when its situation is measured by the only yardstick that counts in the end, its ability to buy the goods it needs to live, in a way the CPI grossly underrates.