I read a blog post today that articulated some points that have been bothering me. This is going to be a little heavy on the economics, but I intend to try and keep it simple.
First, think about the goods and services that really matter over the course of your life. What do you spend money on, and how does it impact you personally?
Second, what do you think of this list?
Essentials, no? Each of these items represents massive parts of your life, and accounts for a decent chunk of all of the money you will ever earn.
Some background info
The governments of most advanced economies have a core mandate of keeping inflation in check. You can think of inflation as the cost of all of the things you typically buy. In other words, inflation measures the cost of living. For a more technical definition, click here.
Why does it matter? Because the cost of living is always rising by the inflation rate, and the amount you earn, or your wage, has to grow faster than inflation…if not, you are getting poorer over time.
In both Canada and the USA, the governments have been telling us for 30 years that inflation has been low and stable. They use a Consumer Price Index (CPI) to measure this.
Here it is in the USA:
Here is Canada:
Basically it looks good in both Canada and the USA. These charts make it seem as if the governments in both nations are doing basically a good job on the inflation front. After all, going by the Consumer Price Index (CPI), it appears that inflation in both countries dropped after the 1980’s, and has been pretty low and stable.
Here’s the catch
This means that for the average person out there, the cost of living is not really rising all that much. This probably should mean the following:
- It isn’t costing you a whole lot more to live in a house.
- It isn’t costing you a whole lot more to get an education.
- It isn’t costing you a whole lot more to get adequate healthcare.
After all, if these things were more expensive today than in the past, how could the government claim that there has been low and steady inflation for the past 30 years? By the statistics, the government has been doing a good job. Specifically, this means that the Bank of Canada and the Federal Reserve in the United States have both been doing what they have been mandated to accomplish for the people.
Now…the truth is that costs on important goods and services are rising.
In Canada, it is basically the second national pass-time to talk about rising house prices, I found this article to articulate the problem decently (for a media outlet).
Here is Healthcare in Canada…now we are spending more as a share of total value of the entire economy since 1980…hardly stable…and it is far worse in the USA.
Something to think about: this is not exactly an apples to oranges comparison in the context of inflation…you have to sort of take it as given that healthcare costs are rising to cause us to spend more on them…but more health care services are also being used. But…I’m just trying to give the Canadian context, because the blog articles I link to are all American.
And… I had trouble finding it for education in Canada…but here is a news article from a couple of years ago that has some decent figures.
Clearly, there is something fishy going on…and it begs the question:
“How can the government claim that it is keeping the cost of living low and stable?”
One of the problems is that they aren’t saying that. They are keeping inflation low and stable…and they measure inflation by using CPI. But this means that they are telling us a white-lie. They are doing what we say literally…and not following the spirit of what we tell them to do. Which is generally what happens when you put people in charge of anything.
There are a number of problems with measuring inflation, and you can be sure that if you asked an economist at the Bank of Canada or at the Federal Reserve in the USA, they would be able to tell you all about how difficult it is to measure. They would show you all sorts of models and fancy tricks that they use to measure inflation.
At the same time, the economists would tell you that while some things get more expensive, many other things are getting cheaper…look at televisions as a prime example…TV’s are much better today and much cheaper…and so you are basically just fine.
Some interesting reading…do take the time to read some of these.
But. Now. Set some time aside and go read this blog post by John Cochrane.
And if you would like to read more, in the John Cochrane post he also links to the following articles (he links to more, but if you follow all of the links it adds up fast):
here is a key quote…and actually it comes from the third link:
I don’t know why more people don’t just come out and say “LOOK, REALLY OUR MAIN PROBLEM IS THAT ALL THE MOST IMPORTANT THINGS COST TEN TIMES AS MUCH AS THEY USED TO FOR NO REASON, PLUS THEY SEEM TO BE GOING DOWN IN QUALITY, AND NOBODY KNOWS WHY, AND WE’RE MOSTLY JUST DESPERATELY FLAILING AROUND LOOKING FOR SOLUTIONS HERE.” State that clearly, and a lot of political debates take on a different light.
We have problems…and they are first world problems…and I’m not just being a spoiled Millennial.
As an aside…anyone that thinks Millennials are spoiled is either an idiot or just plain ignorant. Just look at the data. We Millennials are facing an incredibly difficult uphill financial battle for the rest of our lives…but that is maybe something to talk about another time.
As another aside…politically, most Millennials seem more concerned about social justice than anything else…which is odd, because I think there has actually been a lot of progress on that front, and on this other front…things are looking as if they are getting worse…It reminds me of something Winston Churchill said once…something about not having a brain and not having a heart…or maybe i’m thinking of the Wizard of Oz…hmm.
John Cochrane suggests that these costs are rising because we have a lot of people doing useless work. In other words, it is the increase in the level of bureaucracy that has caused this mess. It is not just government, the blog posts linked up detail point out that even private industry suffers from the bloat of bureaucracy. But we can be sure that the government is a major driver of bureaucracy.
In general, I would suggest that bureaucracy is the result of people avoiding ambiguity and personal responsibility for things they cannot control. The general assumption is that we can let someone else worry about a problem, because we will make it their job to worry about it. However, there are many ambiguous problems where our experts are completely useless, if not downright counterproductive.
…hey weren’t we just talking about economists?
I feel that people should be more concerned with these problems…but the very nature of the problems require people to stop offloading the issues of society on to other people. The very nature of the problem means that people have to sacrifice some part of themselves for a greater good. So. I’m not hopeful. This is going to get worse before it gets better.
One could also draw a simple lesson: we have to start trying to be more self-sufficient.
But we also have to think hard about the myriad of ways that we abuse institutions to gain personal benefit at public cost. Have you ever heard of someone not claiming Old Age Security because they had enough money already saved up for retirement? What about not claiming unemployment benefits because they had saved a lot, and they would rather not be a burden on the system?
… Me neither. It’s simply not rational, and not in any individual’s self-interest….but it might be the responsible thing to do for those who can afford it.
Of course, I risk sounding hypocritical here. I would claim EI today if I were laid off. I wouldn’t hesitate…But at the same time, I would also vote, without hesitation, for a simple means-testing rule (if I thought it would produce minimal bureaucracy), even if it made me unable to qualify for the benefits in some future scenario…I would do that, it’s probably for the best.
I would also stress that it is impossible to judge the relative “responsible-ness” of anyone’s actions factoring everything in…it’s really hard to tell. So we can’t go around pointing fingers.
Aside: I am sure that this guy is better than all of us…He’s Will MacAskill, and he basically gives away all of his money above a subsistence level…on top of that, he makes sure it is spent well. He should probably be more famous than even Tom Brady…but that is not the culture we live in. But. MacAskill is a hero. You should try to learn more about him.
Finally, we have to resist the tempting solution to institutional problems…whether it is at work, who we vote for, or any other aspect of life. We have to abandon the idea that it is someone else’s job to worry about it. Regardless of what it is. AND If we do make it someone elses’ job, we should assume that it is because all other options seem worse, and we should expect that it will generally cause us a headache sometime in the future. We seem to understand the intuition of this problem when it comes to the police…after all, we all know the saying: “who watches the watchers?” Similarly: Who regulates the regulators? Who accounts for the accountants?
The problem is: We love to talk about accountability, but we don’t like being accountable. That goes for me too, lest you think I am being preachy. I hope that part of the solution lies in some careful thought, perhaps Libertarian paternalism? More nudge unit?
I also find myself agreeing with a guy that I feel programmed to dislike…at least on this point. The irony is getting to thick. It’s time for me to leave it here.
Here is Allain de Botton talking about how they impact each and every one of us in the first world…food for thought:
Oh…and since we started talking about financial/economic problems…this video comes from the Bernie Madoff scandal…the senator’s frustration is justified, and yeah…I expect were going to have many more videos like this to watch in the future. Get some popcorn. This is gold. And this is what happens when it’s someone else’s job.