Why you should fear inflation: The CPI understates the true nature of inflation. BLS only allocates less than 2 percent to tuition in CPI. Missing big on the biggest expense in housing.
Some people believe that inflation is simply a part of the normal economy like seeing the sunrise every day. Over time prices will rise on everything, or so the argument goes. I’m not sure if most dig into the question any deeper and question the nature of prices rising. If we look at inflation over generations the dramatic impact is clearly seen. If we see a reasonable rise in wages that accompanies higher prices then things typically even out and the public goes on with daily life. However, what we have seen for more than a decade is that wages are simply not keeping up with the overall change in prices. The middle class is disappearing because purchasing power is getting weaker. Sure, starting in the last two decades people went on a debt binge and this masked some of the loss in purchasing power but debt needs to be paid back. The loss of good paying jobs is a trend that continues and higher prices in housing, medical care, and college tuition continues to eat into the money Americans currently have. You feel poorer because your dollar is getting eaten away by inflation. The BLS tries to measure inflation by looking at a basket of goods in their CPI but misses on weighting some major components accurately. For example, it radically understates college tuition and housing costs. Inflation matters more than some people think.
The temporary employment recovery: Quantitative Easing and favorable banking policies creating a rising tide of temporary workers similar to Japan. Part-time workers up nearly 100 percent in US since 2007.
This recovery unlike other recoveries has been very weak in creating a large number of good paying jobs. Corporate profits are up under a market where wages, benefits, and quality of jobs have decreased while low-wage jobs continue to be added in the tens of thousands each month. Why the reluctance for firms to boost wages? There is still a large pool of people working part-time gigs in the US hoping for full-time employment. We have a large number of people working in this category, nearly twice as many since 2007. What is interesting is that Japan, over two decades ago followed a similar path of recovery focused on Quantitative Easing to support their banking apparatus after a gigantic stock market and real estate bust. The results after a generation? A permanently high level of part-time/non-regular type of work for their labor force. We seem to be offering a similar future to the young in America. Many of the jobs that were lost during the Great Recession came in the $20+/hr job range while we’ve been adding jobs in the $10+/hr job range in this recovery. Do policies favoring banks and larger corporations create a situation where low-wage employment is simply the end result like in Japan?
Sticking it to Millennials and young Americans when it comes to wealth: Households headed by those 40 years old or younger see inflation adjusted wealth 30 percent below 2007 levels while older Americans recoup losses.
The evidence continues to mount on the deep pangs of financial pain faced by younger Americans before and after the Great Recession. The Federal Reserve Bank of St. Louis posted wealth information and what we find is that for those 40 years old and younger, there has been little recovery since the recession ended officially five years ago. Younger Americans were exposed to housing closer to the peak but also, did not partake in the rapid rise of the stock market which is really the domain of a small portion of the population. What is problematic with this situation is that we have a major challenge ahead of us when it comes to retirement because so many older Americans are depending on Social Security for the bulk of their retirement income. The recovery in wealth for older Americans largely is coming from the housing market moving back up. Yet the housing market is not the equivalent to an annuity or a job. There still needs to be some income coming in for items like food, health care, and probably supporting kids with higher expenses from expensive colleges and lower paying jobs. That will be an issue given that the older retiring population will depend on the active incomes of those working. The young have seen a massive hit to what little wealth they had.
The looming retirement train wreck: Pension issues, lack of retirement savings, and extending the date of retirement all part of the current economic future.
The concept of retirement is a fairly modern one. In fact, we can argue that only one generation actually got to enjoy a long and relatively healthy stay in retirement over a mass population. For most of history, life and work went hand and hand and people retired essentially when they keeled over. The only people that had any semblance of retirement were the small wealthy elite. The massive middle class in the US that emerged after World War II seemed to sell the concept of retirement to all. Long endless walks on some unnamed beach followed by bottomless margaritas. This dream seemed like a fantastic vision but they never really specified how all of this was going to be funded. It probably isn’t attractive to talk numbers with people especially when pitching this giant dream. As it turns out, in the early 1980s when companies started easing people off of pensions and into self-funded options like 401ks and IRAs the stock market was on the verge of a major long-term rally. Save a few hundred bucks per month and you would have millions for that picturesque retirement. Here we are nearly a generation later and that plan has ended in complete disaster. People did not prepare and save (or could not save) because of the rising cost of living and real stagnant wages. Since we can’t reverse time, many are now going to rely on Social Security for that retirement dream. We have a major problem when it comes to the future of retirement here in the US.