Plain English with Derek Thompson What Many Economists (and I) Got Wrong About This Economy
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Mar 5, 2024 Judd Cramer, a Harvard economist and co-author of a paper on inflation metrics, challenges common economic perceptions. He explains how traditional inflation measures overlook the staggering impact of soaring interest rates on everyday costs. As housing prices rise, the true cost of living, especially in terms of mortgages and loans, is often misrepresented. Cramer argues that this disconnect fuels economic anxiety and questions the validity of current economic indicators, offering a fresh perspective on what really drives consumer sentiment.
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Misery Index Then vs. Now
- The misery index, combining inflation and unemployment, was created during the 1970s stagflation.
- It reflected the economic hardship felt then, but its components are measured differently today.
CPI Measurement Changes
- The Consumer Price Index (CPI) calculation changed significantly in the 1980s/1990s, especially regarding housing costs.
- Previously, it included mortgage costs and home prices, but now primarily uses rental rates.
Interest Rates & Cost of Living
- Current inflation measures don't account for higher interest rates, which significantly impact the cost of living.
- This omission makes the economy seem better than it is for many, especially regarding large purchases.