systemskeptic wrote:
I'm saying, each person can define inflation however they wish. I was just observing that there are two very different definitions by Marc and yourself for example. To me, what is the point of comparing the life of someone in 1972 to someone in 2012? Or for that matter, comparing someone living in poverty in 2012 vs. a king in 1012. Clearly the person in poverty in 2012 will have a better standard of living than the king in 1012 because of the huge technological gap.
But to me, this says absolutely nothing about useful about "inflation" or changes in the cost of a person's standard of living. Yes you could go live a 1872 lifestyle by not choosing to buy iPhones or ever drive a car or fly in a plane. That may be a useful definition of inflation to you, but it isn't to me. So any talk of bigger TVs, more fuel efficient cars, etc. has no place in a discussion about inflation (to me).
Here is the useful thing about inflation that it tells us: It helps us understand how much of the changes in our cost of living are due to improvements that we choose to spend more of our money on (larger homes, better cars, faster computers, cooler cell phones, etc), compared to the increases in the prices of things that we tend to purchase consistently through time (food, gas, medical care, etc.). The latter category is IMHO a better place to look when trying to figure out how much inflation has actually diminished our purchasing power.
Again, if you are claiming a 4% real return, I'm sure there are ways to make it happen by freezing yourself in time even as the rest of the world progresses, but "maintaining purchasing power through time" is supposed to be just that -- through time.
I'm not claiming a 4% real return. I think that has been pretty well established, even by Marc before he applies his extra management charges and other expenses that go from his left pocket into his right pocket.
IMHO it means the same amount of money can buy (e.g.) "a middle range transportation device" in any time period -- regardless of whether the actual device is a horse, wagon, car, hover-board, etc.
But it's not that simple. Sometimes advances are going to be so dramatic that one would expect there to also be a significant increase in price unrelated to currency devaluation. If there are ever personal aircraft that work like cars, I would expect that such a device would consume a greater proportion of my future income than my car consumes of my current income, mostly because
a person aircraft would perform a more valuable service than a car does. If the use is more valuable, it makes sense that the price would be higher (though this isn't always the case), and it has nothing to do with currency devaluation.
MediumTex wrote:
Do you think that I am pretending that I haven't experienced any inflation? I've gone over this line by line before, but my house payment has gone down about $400 per month because of falling interest rates, my car payments have gone down about $80 per month because of lower auto financing costs, my property taxes have gone down about $40 per month because of a lowered assessed value on my home, my electricity and natural gas bills have gone down $175 per month because of the dramatic fall in the price of natural gas in recent years.
You also aren't the same age, you aren't living the same lifestyle, making the same purchases, earning the same income from investments or wages, etc. That is why personal anecdotes really don't have any bearing on the discussion. Nobody stays the same age or maintains the same lifestyle forever, so trying to measure inflation like that is pointless, IMHO. What is important is how income is changing vs. expenses over time, with respect to your peers not only in your country but really, worldwide.
My own reduced housing expense as a result of falling mortgage interest rates is hardly anecdotal. Millions and millions of people have had this experience, and it is at the heart of the Fed's strategy to help stabilize the economy--i.e., put more money into people's pockets through reduced debt servicing costs.
I'm not saying that my experience is equally applicable to everyone, but it's applicable to a LOT of people.
For a person who has no debt, has significant medical issue and likes to go to rock concerts, he will be experiencing a lot more inflation than I have seen in my situation. The only point I was making with my own experience was to refute the blanket statement and belief that everyone in the U.S. is experiencing significant inflation because I do not believe that to be true. Some are experiencing inflation and there is a lot of inflation in certain sectors of the economy, but these conditions are far different from what we saw in the U.S. in the 1970s when the price of EVERYTHING was going up for EVERYONE.
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