It's time for pundits to face
reality: prices are growing faster than wages.
The Federalist
“Americans should stop
whining about food prices.”
That was the message AEI’s Mark J. Perry blasted last September to families gullible enough to believe that rising food prices
were a problem:
It’s a favorite pastime in this country – Americans love to
complain about rising food prices. Even when they aren’t. In fact, given all of
the complaining you would never know that average food price inflation in
recent years is actually the lowest in several generations. Below are three
reasons that Americans should stop whining about food prices, and be a little
more appreciative of how affordable food is in the US today, especially when
compared to other countries, or when compared to previous decades in US
history.
Perry’s three reasons for why American families should stop
whining were that 1) Americans spend a smaller percentage of their budgets on
food than they did 60 years ago, 2) people in other countries spend more of
their money on food than we do, and 3) the four-year moving average of food
inflation is low.
To which I say: so what? None of those supposedly devastating
critiques of the “inflation is real crowd” came even close to addressing the
real problem for millions of American families: namely, that the prices of
stuff they buy are growing a lot more quickly than the wages they use to buy
that stuff. Yes, it’s nice that we spend a smaller percentage of our budgets on
food than other nations do or than our grandparents did after World War II, but
that’s cold comfort to a working mom trying to figure out how to buy $20 worth
of meat with only $15 left in her pockets.
A lot has happened since Perry told us ten months ago to stop
whining. Did events prove him right or wrong? Was his inexplicably bizarre
method of averaging four years’ worth of inflation data actually an effective
way of predicting future price growth? Let’s take a look:
It turns out food prices have soared since he so confidently
told us to shut up about them. The chart above shows the rapid disparity
between food price growth and wage growth since Perry issued his “stop whining”
directive. No joke: compared to less than a year ago, egg prices are up 13
percent. Beef is up 10 percent. Pork is up more than 9 percent. Fresh fruits
are up over 7 percent. Overall, the prices of food at home are up 2.3 percent,
while average hourly wages are up only 1.4 percent. In other words, food prices
are growing 64 percent faster than wages.
The overall trend since the end of the recession in June of 2009
is no different. Food price growth is outstripping wage growth:
Mark Perry is not alone in his skepticism, though. James Pethokoukis of AEI and Ramesh Ponnuru of National Review have also regularly belittled those with the
audacity to look at rising price data and assume that prices are, in fact,
rising, and that these rising prices might actually be causing problems for
people. In his July 16 Bloomberg column in which he derisively referred to
people concerned about inflation as “cranks,” Ponnuru wrote:
It’s certainly true that a looser monetary policy raises those
prices and a tighter one would bring them down. But these policies would have
the same effect on the price of labor. It’s the ratio of goods and prices to
wages that matters for living standards. There’s no reason to think that the
Fed’s policies are doing anything to increase the percentage of household
budgets spent on food.
This is an interesting graf to unpack, especially since it
attempts to make the same point as Perry did: that there’s no need to worry
since the percentage of the household budget spent on food has remained
relatively static. Here’s the thing, though: if food prices are growing more
quickly than wages (and they are), and if families are still spending the same
percentage of their money on food, then simple math says they must be buying
less food. How is that a good thing, and why are we suddenly congratulating the
Fed for it? At what point did our political pundit class decide that “Stop
whining that you can’t afford more food for your family” or “Whatever, fatty,
you didn’t need that food anyway” were winning messages?
The assertion by Ponnuru that commodity inflation is only real
if it simultaneously affects the price of labor is also odd. Unit labor costs
are notoriously sticky. There’s no spot or futures market for labor, where if I
don’t like the price of yesterday’s contract I can just sell it and buy a new
one today. And a labor market where the true unemployment rate is closer to 10
percent than to 6 percent is not one that’s all that conducive to a rising unit
cost of labor — when you’re lucky just to have a job, you’re not likely to
march into your boss’s office and demand a raise every time new CPI data are
released. Yes, the labor market is slowly improving, but we’re hardly at a
point where employees are on equal ground with their employers when it comes
time to bargain over compensation. Unfortunately, most employers are still
price makers, and most employees are still price takers:
Ponnuru, to his credit, though, noted the real issue that matters
the most to working families: the gap between wage and price growth. That’s a
far more important measure than the array of irrelevant numbers thrown at the
wall by Perry. What Ponnuru leaves unmentioned, though, is that in a number of
major areas, prices are growing a heck of a lot faster than wages. Food price
growth isn’t the only thing that’s outstripped wage growth. There has also been
significant post-recession growth in the prices of education (not just
college), medical care, and gasoline:
Those items comprise a pretty large share of the average family
budget. According to the 2012
personal expenditure survey
conducted by the Bureau of Labor Statistics, a married family with children
will spend upwards of 27 percent of its annual budget on food, education,
health care, and gas. Food alone, whether prepared at home or by a restaurant,
eats up more than 13 percent of the average family’s budget each year.
Prices are rising, they’re rising faster than wages, and they’re
rising for items that comprise a large chunk of the budgets of working American
families. Those are facts. The question is what to do about those facts. The
subtext to all of the inflation critiques from the likes of Perry, Pethokoukis,
and Ponnuru is that we should leave the Federal Reserve alone. Stop blaming the
Fed for inflation, you guys. Please ignore that QE, QE2, QE3, and a multi-year
zero interest rate policy, etc. were all intentionally designed to increase
inflation, you guys. Just ignore all the different goods for which prices are
rising really rapidly, you guys. Ignore the fact that higher prices and
middling wages are eroding standards of living, you guys.
Unfortunately, the constant Federal Reserve apologetics are
seriously clouding these pundits’ collective judgment about an increasingly
important political issue: whether America’s current political class has what
it takes to make rising standards of living — rather than just rising prices —
the norm for American families again. That is why families are so anxious
today. They’re worried that the American dream is slipping away, and that only
thing people in Washington and New York care about is protecting people in
Washington and New York.
Guys, we get it. You like the Fed. A lot. That’s all fine and
well: different strokes for different folks and all that. But stop letting your
compulsion to defend the Fed prevent you from recognizing a very serious issue
that’s affecting tens of millions of families. The first political party or
ideology to come up with a coherent gas and groceries agenda for working
families will have a huge advantage vs. a movement that decides its true
constituency is a collection of technocrat bankers at the Fed.
The prices of things people buy are growing faster than many
people’s ability to buy them. It’s time for pundits to stop pretending rapidly
rising prices are no big deal.
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