RICH PEOPLE DON’T USE ARMS

[Daniel]

Regarding the “core” and “full” CPI: both numbers are in the open for everybody to see. And most (if not all) of government benefits are based on the full CPI, not the core. So it’s unfair to blame the government for massaging the core figure, as they don’t actually use it to compute benefits. The core CPI is of great interest only to the Fed and to Wall Street.

I saw a graph of the full and core CPI over the past 20 years, and it looks exactly how one would expect it to look: big up and down spikes for the full index, while the core index looks like a moving average of the full CPI. Looking at the 2 graphs, it is quite clear that the core captures the overall inflation trend much better than the full index, which swings wildly.

On a side note, the government did indeed mess up the CPI calculation in the 70s, when, faced with high inflation, they started to change the formula to make it more friendly. Their credibility went out the window in the process, and long-term bond rates took off. They won’t make the same mistake again (at least, I hope they won’t). The bond market is not stupid, and, if it smells CPI foul play, then watch out!

[powayseller]

Daniel, I already explained why the CPI, and thus the core CPI are useless. One is useless, the other is more useless because it excludes food and energy. Neither does proper weighting and neither is an accurate indicator of what is my cost of living.

[cooperthedog]

powayseller, the CPI is not useless.

You tend to make some very black or white statements regarding what is generally a very grey area (econometrics, forecasting, etc.).

The CPI may have its flaws, but it is not useless (plus, how can something like the core CPI be *more* useless…). You have to understand that these statistics are designed to give general overviews, applicable to a broad swath of the public, and that your mileage may vary.

Just because it is not applicable to *you* does not mean it is a useless indicator for others, or in general. Would you say that the average height is a useless predictor, since it doesn’t indicate your exact height? Is the closing price of the SP500 useless to investors since it may not accurately weight and value your personal holdings? Should we abolish these general metrics and institute millions of spot-on indexes for each individual? I would venture to guess that the “powaysellerCPI” would be “more useless” to Daniel than the government’s version.

I do agree with the original thread topic. Rich people don’t use their arms – they pay people to do their heavy lifting… (groan…)

[sdrealtor]

“People who pay their own health insurance do so out of their after-tax pay, so $100K/year is about $75K after FICA and taxes, and $7200/year for health insurance is 10%.”

WRONG, Health insurance is tax deductible for self employed individuals whom are mostly likely to pay their own health insurance.

[powayseller]

Thanks, sdrealtor for the correction. An employee who has to pay his own insurance, would not get the tax deduction though. In any case, I would venture that health insurance makes up at least 5% of the median worker’s expenses, and its weighting at .1% is inaccurate of a person’s actual costs.

This is why I stand by my assertion that it is useless, because its mission, to track the price changes of a consumer’s basket of goods, is not fulfilled by the manner in which they do it. We have to agree to disagree. I will not respond to any further debates on this, unless someone brings in a meaningful argument about how the CPI tracks the expenses that a typical American incurs.

[equalizer]

Hi Daniel

Yes you have done some research, but the CPI has been modified many times in the last 20 years, usually to lower the count. AND yes, its very convenient for GOV for the number to be low. I’m asked PS several times to tone done her rhertoric, but this time her tone is too mellow for me!! And I am not a wacko, am a subscriber to WSJ, Barrons, Businessweek, Newsweek, etc.

PLEASE see
http://bigpicture.typepad.com/comments/2006/07/and_so_it_begin.html#comments

(Barry Ritholtz’s great blog. He is just spot on, has one of the BEST economic blogs in the country. And he’s a big Steely Dan fan. Anyone who likes Steely Dan is a genius in my book)

to see why we are so ANGRY. Not only is the CPI adjusted every so often to reduce the number, now economists, stock ANALysts want to completely ignore it!!!

[carlislematthew]

PS, I agree with pretty much all your CPI analysis, but do have to clarify something regarding your statement: “That’s why so few people have health care insurance”.

It is my understanding that 85% of the population is covered by one plan or another, whether it be medicare, or regular insurance. Yes, that 15% NOT covered is a massive number, but still, the VAST majority of the population is insured.

I’m not saying it’s perfect, or that it shouldn’t be better…

[carlislematthew]

And most (if not all) of government benefits are based on the full CPI, not the core. So it’s unfair to blame the government for massaging the core figure, as they don’t actually use it to compute benefits. The core CPI is of great interest only to the Fed and to Wall Street.

Very interesting – thanks for the clarification, Daniel.

[equalizer]

Carlisle
Enjoy your posts!!

First draft:
You family income puts you more than two standard deviation from the median, over 95% confidence ratio. [hopefully you have been there too, SDREALTOR!] So how exactly would your situation have any relevance to even San Diego avg?

Upon further reflection, I mellowed out.

Everyone on television (CNBC, most of Bloomberg) is an elite class that cant relate to the working class. Therefore, they ALWAYS state they we need a tax cut, etc. They are looking out for their self-interest. Of course a dividend cut is good for them, but how is it going to help average joe with credit card debt who is not exactly awash in cash to buy DOW, PFE, etc.

If someone has time (ie, no kids) can they post simple link to actual CPI percentages. Like Carlisle implied, the health care percentage in CPI must be ridiculously understated. The avg inflation in health care in CA is running over 10% for last 5 years straight for large employers. The Fed health plan (biggest in country?), FEHB, has seen premiums rise about 17%, 14, 11, 10, 9 for last 5 years. Check OPM website if you dont belive me.
Nothing to do with malpractice insurance, since CA has 250k cap on malpractice. More likely has to do with illegals and earthquake retrofit reqmt.

[carlislematthew]

You family income puts you more than two standard deviation from the median, over 95% confidence ratio. [hopefully you have been there too, SDREALTOR!] So how exactly would your situation have any relevance to even San Diego avg?

Because I exist. 🙂

(at least I think I do. If I don’t exist, then I don’t understand why it feels so hot. perhaps I’m in hell. interesting…. I didn’t think hell would be so humid!)

[equalizer]

carlisle

At next meetup I’ll get you a cold drink. I’m so glad I have AC, set at 81 with ceiling fan and its great.

[equalizer]

PS
the Fleck is great as is Barry Ritholtz and Bill Gross.
They are looking for Fed to stop in Aug and cut soon after.
I tend to agree. I have been short the 10 year bond for 4 years now through Ultra mutual fund. Disaster. I’m down like 10% even though 10 year went from 4.1 to 5. Should have got ought last month. Talk about imperfect index! Must use CME and CBOE for true hedges. Since bond traders are taking down yield and we are inverting, recession may be coming even with true cost of living rising fast. Thus, fed has to cut, but it wont save RE from a good correction. But it may prevent a bigger loss.

[waiting hawk]

“I’m so glad I have AC, set at 81 with ceiling fan and its great.”

I’m flexing my power with ac set at 70. $360 bill just came. Sure is worth it 🙂

My website tracking Temecula and South Riverside County

[carlislematthew]

At next meetup I’ll get you a cold drink. I’m so glad I have AC, set at 81 with ceiling fan and its great.

When I get home, my house is at 90 degrees. My poor cats!

Cold drink, yes! 🙂

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