tag:blogger.com,1999:blog-8304928500646903522.post5990890783369330895..comments2024-03-28T18:32:05.933-04:00Comments on bensozia: Real Wages and Economic ChangeJohnhttp://www.blogger.com/profile/01037215533094998996noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-8304928500646903522.post-82652047938083146372016-06-10T17:41:01.801-04:002016-06-10T17:41:01.801-04:00"The CPI is based on a survey of what househo...<i>"The CPI is based on a survey of what households are buying; the PCE is based on surveys of what businesses are selling."</i><br /><br />Well then wouldn't the obvious preference be toward the CPI, since we're measuring from the point of the view of the buying power of a person's wages? Who cares about the business end?<br /><br /><i>"The CPI only covers out-of-pocket expenditures on goods and services purchased. It excludes other expenditures that are not paid for directly, for example, medical care paid for by employer-provided insurance, Medicare, and Medicaid."</i><br /><br />Why would you include employer- or government-provided services in a measure of the buying power of a person's wages? If you compare two individuals who make the exact same wage, but one has employer benefits, it doesn't make any sense to suggest that one has a higher "buying power" - it would make far more sense to instead suggest that the one with benefits either makes a higher "effective wage", as modified by the approximated value of their additional benefits. And you certainly shouldn't ever be averaging the two different individuals together for a composite value of "buying power" for their single shared wage.<br /><br /><i>"The details can get quite complicated, but the gist of the matter is that the PCE tries to account for substitution between goods when one good gets more expensive. Thus, if the price of bread goes up, people buy less bread, and the PCE uses a new basket of goods that accounts for people buying less bread. The CPI uses the same basket as before (again, roughly; the details get complicated)."</i><br /><br />Again, since we're trying to measure a person's capacity to buy what they want and need, is making allowances for substitutions all that appropriate? Sure, if bread gets too expensive, people will buy less bread - but that means if you compare wages between one point and another, they are effectively "higher" at the point where an individual can actually afford to buy the bread they want instead of being forced to go without due to high costs.<br /><br />From what I've read here, the PCE feels like it maybe sets out to shoehorn in factors which really don't belong, in an attempt to suggest there has been bigger growth than has actually occured. But of course, I have only the most cursory understanding, so make of that what you will.G. Verlorennoreply@blogger.comtag:blogger.com,1999:blog-8304928500646903522.post-13761517942492319462016-06-10T12:25:10.031-04:002016-06-10T12:25:10.031-04:00Looks like the three blue lines level off just aro...Looks like the three blue lines level off just around the median income. <br />What makes "life satisfaction" different? karlGhttps://www.blogger.com/profile/11890070076159645529noreply@blogger.com