The Real Problem With Prices
Category: News & Politics
Via: robert-in-ohio • 3 months ago • 33 commentsBy: Opinion by Annie Lowrey
We hear the trumpets announcing that inflation is only rising at a rate of 3% and not the 9% it was a couple of years ago and the powers that be in Washington D.C. expect the masses to cheer and be happy.
But there is no cheering
There are sighs of resignation, tears of despair and wails of economic pains and bruises on the American economy and the American people.
What happened?
S E E D E D C O N T E N T
he Great Inflation is, thank goodness, over.
Four years ago, the coronavirus pandemic kinked the planet’s supply chains, causing shortages of everything from semiconductor chips to box fans. War and drought led to disruptions in commodity markets. Temporary lockdowns and a permanent shift away from offices altered consumers’ purchasing patterns. Families found themselves flush with government stimulus money. A tight labor market drove up wages. Those factors combined meant that families had more money to spend at a time when supply was constrained—and businesses took advantage. The price of everything went up, all at once. And for the first time since the 1980s, inflation became the central economic problem in American life.
Now the annual rate of inflation has fallen from a peak of more than 9 percent to just above 3 percent. Retailers are starting to make well-publicized price cuts, seeking revenue by drawing customers in rather than just charging them more. Burger King and McDonald’s are promoting $5 value meals, and Target, Michaels, Giant, Amazon, and Walgreens are slashing the cost of tens of thousands of frequently purchased items such as diapers and cat food.
Finally, families are getting a little breathing room—something that is already showing up in consumer-confidence surveys . A new Federal Reserve Bank of New York poll shows that nearly four in five respondents expect to be doing as well as they are now or better in a year, the highest proportion since 2021. I’d be surprised if Joe Biden’s approval ratings did not begin rising too.
This is all good news. But the United States had a huge problem with prices even before this intense bout of inflation—and will continue to have a huge problem with prices going forward. The sharp increase in costs for small-ticket items that families buy on a day-to-day basis made prices far more salient for American households, but it is the big-ticket, fixed costs that have had the most deleterious impact on family finances over time. These are the costs that are truly sapping average Americans’ ambitions to get ahead, and they are not going down.
F rom the aughts until the onset of the coronavirus pandemic, inflation was essentially a nonissue in American life. The country was suffering from anemic growth and anemic demand: low interest rates, low productivity growth, stagnant wages, and high inequality. The only upshot, really, was that prices were stable and stuff was cheap. Crummy earnings went pretty far at fast-food restaurants and big-box stores, thanks to global supply chains and manufacturing advances. Even homeless people had smartphones. This was the neoliberal deal, supported by Democratic and Republican administrations alike.
[ Rogé Karma: The inflation plateau ]
This paradigm began to shift during the Trump administration, as the country’s low unemployment rate started generating strong wage gains and ample demand. Then, the COVID crisis led to families being showered with stimulus money just as it throttled the supply of dozens of goods. People might have been happy about increased wages and declining inequality, but all they saw was inflation.
The cost of just about everything went up, after more than a decade of not simply price stability but price stagnancy. The numbers on price tags in the grocery store climbed a whopping 13.5 percent from the summer of 2021 to the summer of 2022. Gas prices went up as much as 44 percent year over year. Landlords began asking for $300, $500, even $2,000 more a month for rent.
In response, the Federal Reserve jacked up interest rates—making many things yet more expensive, including mortgages and car loans. Rising prices rattled everyone, rich and poor alike. The shock was repeated and insistent: Every cup of coffee, every Friday-night pizza, every taxi ride home, every flight to see the in-laws, every item that needed to go in the grocery cart acted as a reminder of the cost of living and the impossibility of thriving.
But prices had been a problem long before this sharp burst of inflation. For decades, continuously high prices on big-ticket goods and services have been quietly eating away at American incomes and forcing families to make miserable financial decisions: to delay getting married, to give up the dream of a third kid, to settle in an exurb rather than a city, to put off starting a business.
First, and by far worst, is housing. When the real-estate bubble collapsed during the George W. Bush administration, residential construction cratered and never fully recovered . We are building as many homes now as we were in 1959, though the population has doubled. And we are building a negligible number of homes in the superstar cities where wage and job growth have been strongest. The result is a catastrophic housing shortage and obscene prices, particularly for low-income renters . Indeed, rents have gone up 52 percent in the past decade, whereas prices in general have risen by 32 percent.
Second is the cost of health care. The United States spends 17 percent of its GDP on health services, nearly twice the OECD average, for no better outcomes. The prices are the problem. Insurance costs more here. Prescription drugs cost more here. (Insulin, a century-old drug, costs nine times as much in the United States as it does in our peer countries ; Ozempic is five to 11 times pricier .) Surgeries cost more here. Emergency-room visits cost more here. Administrative costs are absurd here. Aggregate health spending has flattened out since the Obama years, allowing for stronger wage growth. But the country has amped up out-of-pocket burdens: Adjusted for inflation, they have risen steadily and now sit at $1,400 per person, per year.
Third, child care. The median annual cost ranges from $18,000 to $29,000, depending on the child’s age and the care setting. In high-cost cities, such as New York and San Francisco, families routinely shell out even more than that. Millions of Americans who can’t afford it, predominantly women , drop out of the labor force or quit working full-time to take care of their kids.
These obscene costs for working families do not translate into living wages for child-care workers, many of whom live in poverty. The situation has gotten even worse lately, as tens of thousands of day-care workers and nannies have opted to switch to better-paid positions, including in retail, and as pandemic-related federal funding has dried up. Many centers have been forced to raise tuition, though parents are already paying more than they can afford .
No wonder Americans report feeling like they just are not able to get ahead, no matter how much they are earning. In interviews, many folks tell me they simply do not believe that wage growth has outpaced inflation, or that wage growth has been stronger for low-income families than for high-income families, or that middle-class families are wealthier today than they were a few years ago, or that inflation has cooled off to unremarkable levels, despite all of those things being true. It feels awful to pay $15 for a fast-food lunch when you can barely cover your rent. It is infuriating to spend 40 percent more than you wanted to on your weekly errands when you just put a doctor’s bill on a credit card.
Going back to the old neoliberal paradigm would be the worst of all worlds. Middle-class folks might not like spending more on McDonald’s and Uber rides, but paying more would be worth it if it meant that more American workplaces offered middle-class jobs.
[ Ronald Brownstein: Trump’s plan to supercharge inflation ]
Yet I worry that the new paradigm is not going to be much better. Washington has a huge range of options to increase demand in the economy. It can send families checks, amp up unemployment-insurance payments, and cut interest rates down to scratch. It has very few options to control costs and even fewer to increase supply, particularly because building homes, hiring nurses, and constructing new day-care centers would be inflationary in and of itself.
Still, shortages in child care and housing, and obscene prices for health care, pose a threat to American families’ thriving. People should stop being mad about the cost of a Big Mac, and start being mad about the cost of that appendectomy and this month’s day-care bill.
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From the article
A tight labor market drove up wages. Those factors combined meant that families had more money to spend at a time when supply was constrained—and businesses took advantage. The price of everything went up, all at once. And for the first time since the 1980s, inflation became the central economic problem in American life.
No relief in sight
No relief in sight? Have the migrants been told? Don't they believe that "The American Way" means America is the land of opportunity where the streets are paved with gold.
Buzz
Your point has no relation whatsoever to point I made about prices going up, staying up and not coming down concerning inflation in the U.S.
It seems that the everyday items we purchase in grocery stores, hardware stores, even online are more expensive (perhaps only by cents or a couple of dollars) every time we purchase them and there is no end in sight.
While prices still remain high (car prices have dropped) Americans are still buying. It's keeping the economy robust and out of recession. I think I read yesterday the projected GDP will rise to 2.9%.
Many of the name brand staples I like to keep stocked like Lipton Gallon Size Tea Bags and Ranch Style Beans went way up in price for a while, but have recently come back to pre-Covid pricing...
New and especially used cars were temporarily way overvalued because there were very few available and the supply chain was completely interrupted. Supply and demand naturally balance.
Who does not want America and America's economy to succeed?
Yeah but many are buying on high interest credit, which is another crisis that will come a calling one day soon.
The GDP rising and the stock market doing very well are not indicators that things are necessarily going well or that good and services are affordable on Main St USA.
Without the meme, you make a couple of good points, but then you throw in sensationalistic hyper-partisanship into an issue that affects people regardless of political leaning.
Who right now plainly does not want America and America's economy to succeed? Who talks down our growing economy?
It is an election year. Everything is partisan until November 5!
It is an election year. Everything is partisan until November 5!
Only if you make it partisan
I have friends and the far ends of the left and the right and I have never heard a one of them say they want the economy to falter. I also have not heard a politician say that either.
It's not like anyone is putting a gun to their heads to click that Amazon 'Buy Now' button. They will learn, or they won't. Do you advocate government start adding more regulation to credit access?
They are measures of a big picture look. There are many areas of improvement, but the issues are with how American businesses measure success with short term profits at all costs. It's about greed and entitlement that come from all corners of our society.
I'm not any happier that the chopped beef I bought for stew the other day was $10, but I'm not going around all gloom and doom. I paid it because I really wanted stew, but maybe I'll have stew less often than before. I put off the new aquarium project I want to do while I save up a few more months. These are trade-offs we've all done since we started adulting.
Thank you, Gordon Gekko. It's about the workers having to work overtime or take on more than one job in order to stay alive, while the corporate CEOs rake in their millions of dollars in salary and benefits annully in order to spend leisure time on their yachts thinking up new ways to squeeze blood out of the proletariat.
Ever hear or read the word "tariffs"?
Yes
businesses took advantage. The price of everything went up, all at once.
I tend to agree with you that the supply and demand factor was taken great advantage of by corporate America (which is a natural phenomenon that we have seen for decades, maybe centuries in the country), but I disagree that everything went up all at once (except for the COVID spike prices have gradually but steadily increased over the past few years on many daily necessities.
Prices of things do sometimes come down. People hate inflation, but they hate it much worse when their homes and stock prices tank. Yet, the net worths of most Americans have skyrocketed during the last 3 years...
Covid and Putin dealt the world economy a blow. Fortunately the United States is right now leading the world in a record economic recovery.
As with all economic problems the best way forward is by growth.
On that front the United States is winning across the world stage.
Corporate America agrees with you and the push for market expansion, price growth as cost growth occurs and workers being replaced by more economical (and more easily controlled) AI and automation options will certainly go on.
I agree that large portion of the populace are loving the high-flying stock market and high interest rates on savings and CD accounts but those come with high interest rates, high home prices etc so the working portion of middle and upper middle-class America are suffering a bit as costs continue to rise on things they need.
Being retired with a solid source of income, a house and vehicles that are paid for and money in the bank and stock market it is a great time in the USA - but the flip side is a young middle class couple with decent (not great) paying jobs and a couple of kids paying rent, paying for a car with high interest loans and trying to keep food on the table it is not so easy.
Too many people are living on credit cards and that will create problems in the future
If you think it is hard on young people today you forgot the 1980s. With a college degree and a prestige banking job I made $1400 a month, the government took almost half and my rent was $500!
I didn't run up credit cards but I also didn't struggle with my weight!
so you are claiming an almost 50% tax rate?
In 1981 took home less than $800 net from a $1,200 gross per month plus paid sales, property, excise etc taxes and fees...
So 50%? Yeah, pretty much!
In 1985, the average federal income tax rate was 14.4% of AGI.
thanks for that bit of sanity!
In 1981 took home less than $800 net from a $1,200 gross per month plus paid sales, property, excise etc taxes and fees...
So 50%? Yeah, pretty much!
Then must have been paying 30%+ in state income taxes because federal taxes on that $15000 annual income were not above 20% in the 80's
I researched a bit and see no way you could have been paying near 50% taxes on $15K gross income, but I could be wrong maybe
Here is some sanity for you...
I never said squat about "only income taxes" but including Social Security, Medicare, Unemployment Insurance etc etc I took home less than $800 out of $1,200 and then paid every other tax people pay / sales, property, excise, tags etc etc...
The point is that things were never easy for young people.
Exactly, paying your share unlike Hunter.
Well Now that you provided a meme - your point becomes clear thanks for the clarification
Biden doesn't deserve another term. Neither does Trump.
But some will willingly vote for one of them despite the fact they both suck!
The sheep will still have their say in all of this. Yes, thanks to the stranglehold the two-party system has on the electoral process one of the two of them is most likely to become the next president. But I would rather vote as my heart tells me than just follow the crowd or as some put it to vote for the "less bad" candidate. With over 160 million registered voters in the country, my single vote is much more meaningful to me than to a presidential election.
I feel a vote for a bad candidate isn't taking advantage of our election process.
And if we always vote for only the R or the D, then we shouldn't whine when we end up with two poor candidates like in this year's election.
The major parties have no incentive to provide any better candidates, really, all they have to do is declare the other guy or gal is worse. Really inspiring to vote for that, huh?
I can't do it--waste my vote on someone I feel is unqualified or undeserving--even if who I vote for has no realistic shot at winning.
At least I can hold my head up high and say I voted for the person who I thought could do a good job, not merely someone "not as bad as......"
Well, blaming people on main street, greedy corps., health care, child care, or whatever scapegoat pushes the liberal narrative won't change the facts.
$1.00 of Biden's pandemic relief is worth $0.80 today. Over the last 3 years and 1 quarter, the buying power of the dollar has shrunk by 20 pct. Check it out yourself: So, what does that mean? A $1 million 401k has be worth $1.2 million today just to keep up with inflation. That house bought for $400,000 when Biden took office has to sell for $480,000 today just to keep up with inflation. That Ford F-150 that cost $50,000 when Biden took office must sell for $60,000 today just to keep up with inflation.
The economically liberal gaslighters also like to point out consumers were flush with Biden 'stimulus' cash. But that phony excuse doesn't stand up to the fact that consumer debt began rising at an alarming rate when Biden stimulated the economy.
(Note: I added the blue line to show when Joe Biden took office as President. Biden's pandemic relief didn't avoid a rapid rise in credit card debt. And that steep rise in consumer debt has been an indicator of a bad economy in the past.)