Timmy elsewhere

I actually do some real economics for a change:

US Wages Have Been Rising Faster Than Productivity For Decades

23 thoughts on “Timmy elsewhere”

  1. Tim

    Anything on Murphy’s plaintive ‘The UK is dedicated to the suppression of ability’ post – a self-evidently inaccurate one given his prominence!

  2. I don’t necessarily agree with you there Tim,

    ‘Total compensation is all the costs to the employer of employing you’

    If the employer gives me the money that he currently pays into my 401k and I can choose to spend it on a 401k rather than a ferrari then yes, it is part of my compensation package but as I get no say in how that money is spent it can’t be called my money.

    By your reasoning, the Government could mandate that everybody must be paid an extra £100,000 p/a.
    However if the Government also state that every employee has to contribute to the employer relief fund a sum of £100,000 p/a

    I get an above productivity rise that I do not benefit from.

    How is 13 channels of shit on the TV to choose from an improvement over the 3 we used to get.

  3. Tim

    Forbes is largely aimed at US readers who are unlikely to have any idea what an Amstrad PC is all about?

  4. First initial reaction before I finish reading:

    I like that the employer is a she. Good move cutting off one line of SJW attacks.

  5. I was reading some of Hayek’s stuff from the 1920s recently. He talks about W.C.Mitchell. Mitchell made similar points about price indices. The right index for one job isn’t necessarily the right index for another.

  6. Doesn’t the entire argument rely on trusting that the official CPI inflation numbers are actually correct?

    For most goods and services I actually buy, and therefore know the prices and quality changes of, inflation has been far closer to 8% rather than the stated <2% over the last 20 years. This includes food, energy, healthcare, education, housing, and transportation. Computers are an outlier that I credit to wide spread adoption of revolutionary technology. This is the one major product where I have seen a actual decease in prices for similar quality. I credit the difference to flaws in the hedonic models where things like universal remotes are overvalued and comparable screen sizes aren't used(a 19" 4:3 screen should be compared to a 23" 16:9 screen, not 19" to allow the same vertical dimension as the extra horizontal area is already accounted for in the screen size adjustment).

    It seems to me that the real world inflation I see would destroy the gains in total compensation. Capital would experience similar loses but because capital is taxed at a lower rate productivity gains would not be impacted as much.

    I am sure I am missing something obvious. Assuming I am correct, hedonic modelling is flawed, how I am misreading the effects of unreported 8% inflation on compensation? I'd rather not repeat examining the TV example as, to stay on topic, it doesn't really matter what inflation is, just the effects for different plausible rates.

  7. “This includes food, energy,”

    How you could possibly believe those two have gone up more than the reported inflation rate amazes.

    Back in the 1960s the average American household was spending 30% of income on food. That’s how we derived the poverty level, 3x cheap food budget. Back a generation before it was more like 50%. Food is now about (about) 10% of household spending.

    We’re in the first time ever for the average working bod of cheap food. What the fuck do you mean it’s gone up in price?

  8. My food budget has dropped dramatically in the last six months, mainly because an Aldi opened up down the road.

  9. Breakfast cereal I used to by for $2.50 a box is now $6 a box, and the box is smaller. Sugar sold at $1 for a 5lb bag and now a 4 lb bag is now over $2. Lemons that could be for of 20¢ a piece now come in bags of 6 for almost $5. Choice beef that used to sell for $1 a lb has been replaced with select that sells for $4 a lb. Most processed food hasn’t been nearly as bad but because of my reaction to common food dyes I can’t eat it anyway. Even still the box of Mac & Cheese that used to be available for 39¢ is now 89¢.

    Everyone keeps saying that US food is very cheap but I don’t see that at the grocery stores I go to. Part of that can be accounted for by the fact I don’t shop at Walmart. Once a grocer starts dying their meat and produce to make it more appealing I can’t eat it anyway and hence don’t bother to shop there. A large portion of the increase can be attributed to higher energy prices and weather definitely has an effect. I may be remembering some sale prices and comparing them to current non-sale prices. None of this explains why peak season blueberries that used to sell 10 pints for $1 were 2 for $5 this year when we had a relatively good harvest.

    Feel free to continue claiming food hasn’t gotten far more expensive but the stores I shop at are far more expensive unless inflation is much higher than the stated figures. As the stores I have visited in Michigan, Indiana, Ohio, West Virginia, Maryland, and Virginia have seen similar increases we can’t just write this off based on Pittsburgh’s traditionally higher food costs. If the small town grocer I worked at in high school hadn’t gone out of business when Walmart moved in I expect I could easily expand my personal data set to 1992 and find the same results.

    As I said, assuming that the true inflation rate mirrors what I see in retail prices(close to 8%) how does this affect the total compensation versus productivity?

  10. Andrew Carey>

    Interesting. Of those items, only the Vectrex console would cost more now in nominal terms, let alone in real terms. (Well, I’m thinking something else to record music on instead of tapes.)

    Liberal Yank>

    Is it possible you’re more strongly remembering some fairly recent price rises than the long lulls between rises, and giving them far greater weight in guesstimating your average than you should?

    I’m a bit baffled, because I’d tend to agree with you that it seems like inflation is higher than the official estimates. Maybe it’s Baumol’s Cost Disease coming out, though, in that the stuff we buy more regularly contains a larger element of services than the average of what we buy over time, while manufactured goods are getting cheaper fast enough to largely offset that – and obviously our perceptions are being influenced by the more frequent smaller purchases rather than the less frequent bigger ones.

  11. Dave,

    A major portion of the increase in food costs was the increase in energy costs. Gas prices are well over double the highs from 1996($2.63 vs $1.24). The 2500% increase in the price of peak season blueberries can’t be accounted for in just added fuel costs.

    The problem is that the price increases aren’t just in the volatile food and energy segments. The TV’s(bought in 1996 for $99[$152 equivalent purchasing power according to the CPI inflation calculator]) closest equivalent is currently $143 on Amazon which looks good until we look closer. The modern TV will most likely need to be repaired or replaced four times to reach the same service life, more if I put it in my workshop. On top of the added costs due to reduced durability I have to purchase additional accessories. Thanks to the reduced depth sound quality is generally poorer so I need additional audio equipment. In my experience a subscription service or antenna, sold separately, is needed just to get a signal. The TV that appears to be $9 cheaper is actually far more expensive than advertised or accounted for in the CPI.


    I do when it is worth the time. When I go to Aldi’s I need to plan an extra hour for the trip. I also need to plan for a second trip to another store as Aldi’s store brands often leave something to be desired. If the costs of going to Aldi’s outweigh the savings there is no reason to drive so for most trips I just end up going to the local store. I normally just buy the local store’s off brand when the quality is acceptable.

  12. There’s probably a vintage TV advert on the web fronted by Jimmy Savile saying “This is the age of the train”. It showed a sample of rail prices from that time, but I’m not going to search for it on a work computer.

  13. Some may find this interesting*. Tandon were a second tier business PC manufacturer, so their prices were marginally cheaper than IBM or Compaq.

    My experience buying PCs for businesses with a few thousand seats gave me a useful rule of thumb: you could buy a really basic PC for £1,000; a usable PC for £2,000 and an absolute beast for £3,000 ($=£ was a standard ‘exchange rate back in the day). Those numbers held true for a decade (though the absolute specs of the kit doubled every 18/24 months in line with Moore’s ‘law’).

    * for a sufficiently small value of ‘interesting’

  14. Like LY, I’m not so sure of your hedonic benefits.
    Let’s take your computer example.
    I used to use a neat little Tosh, ran W97. It did what I needed. Browsed web pages on the net, bit of WP, e-mail etc. If there was an equivalent of that little Tosh, still available, it should be cheap as chips (actually there is. I’ve a Raspberry Pi displaying on a Chinese LCD car monitor both powered off a 12V moto battery. <£50 the lot But not exactly an ergonomic package ) But I'm typing this on a 400 quid laptop infested with W10. I still want to do what I did with the Tosh. But it wouldn't render your Forbes web page, no software works with W97 & ewverything's so full of bloat it'd overwhelm it's paltry RAM & H/D.
    I'm still trying to do exactly the same things. I'm obliged to buy expensive kit & consume oodles of bandwidth because that's what suppliers have forced on me.
    And I'd say that applies to a lot of things. I don't actually need a car full of bells & whistles to drive to the bar. I didn't need to switch to digital TV with a million channels of crap. I don't need a phone does anything apart from make calls or a phone service does anything else but enable them. It's not me insisting on f****g whatsap.

  15. BiS; here’s (http://eschatologist.net/blog/?p=266) a guy who ran the Byte UNIX benchmarks on a Pi2 and compared them to a 1994 SPARCstation. My Pi2 doesn’t feel as fast as my 12 year old XP laptop when browsing, which is interesting.

    There’s a similar ‘bloat’ issue with cars, but not just with the gadgets. The safety requirements have meant that the frame now absorbs a shit load of the energy in a collision, so some low-ish speed knocks are now no longer economic to repair, or a repair leads to a series of things just working loose over the next few months. And for similar reasons, some maintenance now has 2 to 4 hours of taking bits off just to get access, so a quick Saturday morning job before popping to the shops is now the best part of the day.

    On the other hand, people walk away from totalled cars these days, where as 20 years ago they’d be scraped out of the wreckage with a shovel.

  16. BiS and Ducky,

    Thanks for jumping in. I will add that a lot of the consumer’s cost in purchasing a new cars has been shifted to the financial side. I haven’t gathered the necessary information to have a solid argument and a quick search didn’t give me the average automotive loan term in 1996. I did find that it has gone from 63.3 months in 2005 to 68.3 months in 2015[1]. From what I recall the loans available in 1996 were 24 or 36 months but I wasn’t seriously shopping for a new vehicle then. The used market is far worse. If financed, the equivalent to the 1996 decent $1,000 used car is frequently over $10,000. A lot of that is due to cash for clunkers taking a large number of vehicles off the road.

    I just wish I had gotten an answer to the question I asked. It seems that at 8% inflation(assuming this value for purposes of the question) that the increase in total compensation claimed disappears. Am I correct or is there something I am missing?

    [1] http://www.marketwatch.com/story/why-americans-are-using-bigger-longer-loans-to-buy-fancier-cars-2016-01-26

  17. Ok, but if the real growth of compensation is understated because of quality improvements, then surely productivity is too, because output should be scaled up by the same factor?

    In which case, it does nothing to change any ‘gap’ (if there is a gap).

    The computer you buy is worth a hell of a lot more than your old Amstrad, but so is the computer that somebody makes.

  18. I would think productivity would be lowered if we accounted for durability. After all the product is worth less than is currently claimed.

    There might be too much engineering in my thought process though. When I buy a product I buy it to do a job for a period of time. I am not prone to buying something because, hey look, a squirrel, it just caught my eye. Now, how much is a squirrel feeder with feed and how long will it keep the squirrel fed for?

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