This post considers the “Chart of the Century” created and named by Mark Perry, an economics professor and AEI scholar. This chart has received considerable attention because it contains extensive information about the challenges faced by the Fed and other Washington policymakers.
The most current version reports price increases from 1998 through the end of 2023 for 14 categories of goods and services, along with the average wage and overall Consumer Price Index.
It shows that prices of goods subject to foreign competition — think toys and television sets — have tumbled over the past two decades as trade barriers have come down worldwide. Meanwhile, the costs of so-called non-tradeable items — hospital stays and college tuition, to name two — have surged.
From January 1998 to now, the CPI for All Items has increased by over 90% (up from 59.6% in 2019, when I first shared this chart).
Lines above the overall inflation line have become functionally more expensive over time, and lines below the overall inflation line have become functionally less expensive.
via Human Progress
At the beginning of 2020 (when I shared the 2019 post), food, beverages, and housing were in line with inflation. They’ve now skyrocketed above inflation, which helps to explain the unease many households are feeling right now. College tuition and hospital services have also continued to rise over the past few years—even in relation to inflation.
There are many ways to interpret this chart. You can point to items in red whose prices have exceeded inflation as government-regulated or quasi-monopolies. You can point to items in blue as daily commodities that have suffered from ubiquity, are subject to free-market forces, or are goods subject to foreign competition and trade wars.
Looking at the prices that decrease the most, they’re all technologies. New technologies almost always become less expensive as we optimize manufacturing, components become cheaper, and competition increases. From VisualCapitalist, at the turn of the century, a flat-screen TV would cost around 17% of the median income ($42,148). In the early aughts, though, prices began to fall quickly. Today, a new TV will cost less than 1% of the U.S. median income ($54,132).
Compare “tradable” goods like cell phones or TVs (with lots of competing products) to less tradable “goods” like hospital stays or college tuition, and unsurprisingly, they’ve gone in opposite directions. In 2020, I asked what the Coronavirus would do to prices, and the answer was less than expected. If you don’t look at the rise in inflation but instead the change in trajectories, very few categories were heavily affected. While hospital services have skyrocketed since 2019, they were already skyrocketing.
At this point, we’re pretty far removed from quarantine’s most extreme forces. Textbooks have come back down, as have childcare and medical care services. New cars and household furnishings have leveled out. Otherwise, the trajectories have been pretty unaffected.
We can look one step deeper if we consider average hourly income. Since 2000, overall inflation has increased by 82.4%, while average hourly income has increased by 114%. This means that hourly income increased 38% faster than prices (which indicates a 14.8% decrease in overall time prices). You get 17.3% more today for the same amount of time worked ~24 years ago.
It’s interesting to look at data like that, knowing that the average household is feeling a “crunch” right now. My guess is that few consumers distinguish between perception and reality. However, feeling a crunch isn’t necessarily the same as being in a crunch.
For instance, we must account for ‘quality of life creep,’ where people tend to splurge on luxuries as their standard of living improves. With the ease of online shopping and access to consumer credit, it’s become increasingly easy to indulge in impulse purchases, leading to reduced savings and feelings of financial scarcity. This phenomenon is a function of increased consumption (rather than inflation), yet it still leaves consumers feeling like they’re struggling to make ends meet.
Perry’s ‘Chart of the Century’ reveals the complex relationships between inflation, consumption, and economic growth. While households may feel financial strain, the data shows that income has outpaced inflation, and technology has made many goods more affordable. Nonetheless, our tendency to splurge on luxuries and increased consumption have contributed to a sense of financial struggle.
How can policymakers address the sectors experiencing significant price hikes, like healthcare and education, without stifling innovation in tradable goods and services?
How do you think these issues will impact the Election?
Can We Rewrite History?
The problem with history is it rarely tells the whole story.
Ideally, history would be presented objectively, recounting facts without the influence of societal bias, the perspective of the victor, or the storyteller's slant. But achieving this is harder than it seems.
Think about your daily life – it is filled with many seemingly innocuous judgments about your perception of the economy, what's happening in the markets, who is a hero, who deserves punishment, and whether an action is "Just" or "Wrong".
I'm often surprised by how frequently intelligent people violently disagree on issues that seem clear-cut to them.
It's like a fish in water not realizing it's in water ... Most people don't realize the inherent biases and filters that inform their sense of the world or reality.
This post is an attempt to highlight the importance of diverse perspectives and information sources in building well-informed viewpoints.
Even though most people would agree that genuinely understanding history requires a clear picture, free from bias ... I think it's apparent that history (as we know it) is subjective. The narrative shifts to support the needs of the society reporting it.
The Cold War is a great example where: during the war, immediately after the war, and today, the interpretation of the causes and events has changed.
But while that's one example, to a certain degree, we can see it everywhere. We can even see it in the way events are reported today. News stations color the story based on whether they're red or blue, and the internet is quick to jump on a bandwagon even if the information is hearsay.
Now, what happens when you can literally rewrite history?
That's one of the potential risks of deepfake technology. As it gets better, creating "supporting evidence" becomes easier for whatever narrative a government or other entity is trying to make real.
On July 20th, 1969, Neil Armstrong and Buzz Aldrin landed safely on the moon. They then returned to Earth safely as well.
MIT recently created a deepfake of a speech Nixon's speechwriter William Safire wrote during the Apollo 11 mission in case of disaster. The whole video is worth watching, but the speech starts around 4:20.
MIT via In Event Of Moon Disaster
Can you imagine the real-world ripples that would have occurred if the astronauts died on that journey (or if people genuinely believed they did)? Here is a quote from the press response the Nixon-era government prepared in case of that disaster.
Today, alternative histories are becoming some people's realities. Why? Media disinformation is the cause and is more dangerous than ever.
Alternative history can only be called that when it's discernible from the truth, and unfortunately, we're prone to look for information that already fits our biases.
Today, we also have to increasingly consider the impacts of technology. Deepfakes are becoming more commonplace - with popstar Drake even using AI in a recent record. Now, that was apparent - but scarily, research shows that most can't tell a deepfake from reality (even if they think they can.)
As deepfakes get better, we'll also get better at detecting them, but it's a cat-and-mouse game with no end in sight.
In Signalling theory, it's the idea that signallers evolve to become better at manipulating receivers, while receivers evolve to become more resistant to manipulation. We're seeing the same thing in trading with algorithms.
In 1983, Stanislav Petrov saved the world. Petrov was the duty officer at the command center for a Russian nuclear early-warning system when the system reported that a missile had been launched from the U.S., followed by up to five more. Petrov judged the reports to be a false alarm and didn't authorize retaliation (and a potential nuclear WWIII where countless would have died).
But messaging is now getting more convincing. It's harder to tell real from fake. What happens when a world leader has a convincing enough deepfake with a convincing enough threat to another country? Will people have the wherewithal to double-check? What about when they're buffeted by these messages constantly and from every direction?
As we increasingly use AI for writing and editing, there is a growing risk of subtle changes being made to messages and communications. This widespread opportunity to manipulate information amplifies the capacity and potential for people to use these technologies to influence people's perceptions. As a result, we must be increasingly cautious about how the data we rely on may be altered, which could ultimately affect our perceptions and decisions.
Despite the risks, I'm excited about the promise and the possibilities of technology. But, as always, in search of the good (or better), we have to acknowledge and be prepared for the bad.
Posted at 09:03 PM in Business, Current Affairs, Ideas, Market Commentary, Personal Development, Science, Trading, Trading Tools, Web/Tech, Writing | Permalink | Comments (0)
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