Image by NoisyKnight
One of the mandates of the Federal Reserve is to maintain stable prices. Let’s look at inflation since the start of the decade:
Most economists take “stable prices” to mean “inflation between 0% and 2% every year”, and the Fed seems to have hit this target with admirable accuracy.
But wait. Let’s dig a little deeper into the numbers. What are the things people spend money on? Consider the essentials first.
Food prices are rising faster than inflation:
So are energy prices:
Healthcare as well:
And education is simply off the charts:
Services in general are getting dearer:
Despite the crash of 2008, house prices remain elevated above CPI:
Food, energy, shelter, healthcare, education, professional services — all rising faster than CPI. In some cases, significantly so.
Meanwhile, what has been growing slower than CPI? You guessed it: wages.
And this is just for those people lucky enough to be employed. Many Americans are not so lucky:
How do people plug the gap? They have had to borrow:
You would think that low interest rates night ease the burden. But no. LIBOR (the rate at which banks borrow money) may be close to zero, but the average credit card interest rate is unchanged from 10 years ago at 12%
Naturally, this means record bank profits:
It’s not just the banks that are doing well. The combination of stagnant wages, reduced payrolls and high prices benefits all companies:
as reflected in stock prices, which are at an all-time high:
Who owns these stocks? It turns out that 80% of all stocks are owned by the richest 10% of Americans:
(This number is up from 75% at the turn of the millennium; stock ownership is becoming more, not less concentrated).
So, to summarize:
- the prices of many essential goods are rising far faster than CPI
- wages, on the other hand, are rising slower than CPI, and many Americans remain unemployed
- to plug the gap, families have to resort to credit card debt at ruinous interest rates
- which contributes to the record profits accruing to banks and large corporations
- whose stock prices are at all-time highs, helping the rich who own most of these stocks
No wonder the 99% are angry!
My challenge for those who might argue my analysis is specious and/or cherry-picked: All the data and much more is right here. I am keen to hear data-driven counter arguments!