Like some people said on HN, the premise of this is based on a misunderstanding of how the poverty line is calculated.
Look, just because some people on HN turned their brain off, it doesn’t mean you have to listen to them. It’s clear if they said this, they read a tenth of the article at most and then jumped to conclusions. The misunderstanding is theirs, and now yours unless you read and grok the whole article.
They don’t take each year’s grocery expenses and multiply by 3.
Indeed they do not.
Instead they take the same 1963 figure and adjust it each year for inflation generally.
Okay. But what underpins the 1963 figure? That’s his whole point. The figure effectively looked at one variable and assumes that several related others remain static for 60 years.
This means if [it] was an accurate estimate then and the inflation calculation is correct, then it should remain roughly accurate
If it were instead adjusted for inflation since 1910, and the poverty line was based on horse maintenance expenses x3, because it made sense at the time, and it was an accurate estimate then, would this have remained roughly accurate to today? Neigh way José.
The benchmark is not keeping up with modern expenses, nor does it factor in changes to known 1963 variables that the benchmark still presumes are static, effectively pegged at 1963 values.
Just read the whole article. Your future depends on it.
To be fair, I did only read about the first 1/3 of the article before I got too annoyed at it and checked the HN comments to see if anyone had the same frustrations I did. I’ve now gone back and read the whole article, and my skepticism for their numbers/calculations remains throughout. I agree with their point generally, that there’s a benefits cliff that undermines the effectiveness of the social safety net, but the way that they get there feels like them pulling numbers out of nowhere.
Also, you’re still making the same mistake that the author did by saying that it assumes that other variables remain static for 60 years. That’s not how this calculation is done. The previous value is multiplied by the change in CPI, which is a measure of the inflation. That inflation measure includes increases in housing, food, etc. Which is the way in which those other variables are coupled back into the metric.
Your horse example actually demonstrates this, but in the opposite way to what you’re saying.
Imagine that 3x horse expenses was a really good metric for how much you needed to survive in 1910. Let’s say that worked out to 1k a year (making numbers up). At this point we don’t have to care how this number was derived, since it’s a really good metric for the poverty line in 1910. Now we take this 1k number and multiple it by the inflation since 1910. Not the inflation in horse maintenance costs (which would be what you’re describing), but the general inflation overall. We arrive at some number. Horse maintenance is now essentially 0% of the average cost of living, but that won’t make this metric incorrect. Imagine that the metric was instead based on 10x the cost of clothes. And that also worked out to about 1k. It’s not like when we multiply this 1k by the CPI change, we’re going to end up with a different number than the 1k*CPI we got from horse maintenance costs. How the original number was derived is not relevant to its current accuracy. This is the fallacy that both you and the article are making.
The more correct question to be asking is why does CPI not account for the cost of living changes we see. Not dunking on a formula because you misunderstand it.
Housing prices (one of the leading drivers of real inflation) is excluded from CPI and inflation coefficient because real estate market is volatile and housing is deemed investment asset rather than a consumer good.
This is why we have 2-3% inflation across the Western world and generally unaffordable housing there.
I believe that some parts of housing are included, like rental costs, which most people around the poverty line are paying instead of a mortgage. Since renting is consumptive instead of asset generating.
But yeah, this doesn’t capture the additional disparity between rental and purchase prices, and that’s huge in trying to own your home.
Housing prices (one of the leading drivers of real inflation) is excluded from CPI and inflation coefficient because real estate market is volatile and housing is deemed investment asset rather than a consumer good.
This is why we have 2-3% inflation across the Western world and generally unaffordable housing there.
Look, just because some people on HN turned their brain off, it doesn’t mean you have to listen to them. It’s clear if they said this, they read a tenth of the article at most and then jumped to conclusions. The misunderstanding is theirs, and now yours unless you read and grok the whole article.
Indeed they do not.
Okay. But what underpins the 1963 figure? That’s his whole point. The figure effectively looked at one variable and assumes that several related others remain static for 60 years.
If it were instead adjusted for inflation since 1910, and the poverty line was based on horse maintenance expenses x3, because it made sense at the time, and it was an accurate estimate then, would this have remained roughly accurate to today? Neigh way José.
The benchmark is not keeping up with modern expenses, nor does it factor in changes to known 1963 variables that the benchmark still presumes are static, effectively pegged at 1963 values.
Just read the whole article. Your future depends on it.
To be fair, I did only read about the first 1/3 of the article before I got too annoyed at it and checked the HN comments to see if anyone had the same frustrations I did. I’ve now gone back and read the whole article, and my skepticism for their numbers/calculations remains throughout. I agree with their point generally, that there’s a benefits cliff that undermines the effectiveness of the social safety net, but the way that they get there feels like them pulling numbers out of nowhere.
Also, you’re still making the same mistake that the author did by saying that it assumes that other variables remain static for 60 years. That’s not how this calculation is done. The previous value is multiplied by the change in CPI, which is a measure of the inflation. That inflation measure includes increases in housing, food, etc. Which is the way in which those other variables are coupled back into the metric.
Your horse example actually demonstrates this, but in the opposite way to what you’re saying.
Imagine that 3x horse expenses was a really good metric for how much you needed to survive in 1910. Let’s say that worked out to 1k a year (making numbers up). At this point we don’t have to care how this number was derived, since it’s a really good metric for the poverty line in 1910. Now we take this 1k number and multiple it by the inflation since 1910. Not the inflation in horse maintenance costs (which would be what you’re describing), but the general inflation overall. We arrive at some number. Horse maintenance is now essentially 0% of the average cost of living, but that won’t make this metric incorrect. Imagine that the metric was instead based on 10x the cost of clothes. And that also worked out to about 1k. It’s not like when we multiply this 1k by the CPI change, we’re going to end up with a different number than the 1k*CPI we got from horse maintenance costs. How the original number was derived is not relevant to its current accuracy. This is the fallacy that both you and the article are making.
The more correct question to be asking is why does CPI not account for the cost of living changes we see. Not dunking on a formula because you misunderstand it.
Housing prices (one of the leading drivers of real inflation) is excluded from CPI and inflation coefficient because real estate market is volatile and housing is deemed investment asset rather than a consumer good.
This is why we have 2-3% inflation across the Western world and generally unaffordable housing there.
I believe that some parts of housing are included, like rental costs, which most people around the poverty line are paying instead of a mortgage. Since renting is consumptive instead of asset generating.
But yeah, this doesn’t capture the additional disparity between rental and purchase prices, and that’s huge in trying to own your home.
Housing prices (one of the leading drivers of real inflation) is excluded from CPI and inflation coefficient because real estate market is volatile and housing is deemed investment asset rather than a consumer good.
This is why we have 2-3% inflation across the Western world and generally unaffordable housing there.