MAKING SENSE -- September 19, 2011 at 5:00 PM ET
Gauging America's Economic Mood
Paul Solman answers questions from NewsHour viewers and Web visitors on business and economic news on his Making Sen$e page. Here's Monday's query:
The email tale below refers to a story of ours on inflation from a while back in which MIT economics professor Roberto Rigobon explained that inflation was on the rise, but that the culprit was the increased overall level of consumption in the United States, not the rise in the price of oil, which takes a long time to percolate through the economy:
ROBERTO RIGOBON: Oil prices go up. Then the gas prices at the pump go up. Then, transportation companies, their costs go up. They have to decide to increase their prices. Then, when those guys increase their prices, the retailer has a higher price of bread at the store. And then they have to decide when to pass that to the consumer. That doesn't happen in a week.
PAUL SOLMAN: A year-and-a-half, according to researchers. So then why the recent run-up in prices?
ROBERTO RIGOBON: Our demand has increased tremendously. For example, we're almost at the same level of demand that we had before the bubble. OK? And this is 2007, before the bubble went -- busted. Our consumption per capita is roughly the same of what we had at that time.
This infuriated several emailers, including the one below where 4956 ldfl wrote:
It is obvious that Mr. Rigobon graduated in the bottom half of his class, no one with any real economic knowledge would make the comment that the rising price of gas only affects the consumer when he fills his tank. To state that rising gas prices do not affect food, drugs, movies or clothing is absurd. We aren't moving our food clothing and other goods with electric power or teleportation, we are moving it with trucks, trains and planes all of which use some form of gas as fuel. Why should I believe any of his other analysis?
As for spending at 2007 levels, he completely ignores the influence of unemployment wages in keeping demand higher for those who have no other source of income. Tying one's salary to sales is not a protection from inflation. When sales fall so does income but not necessarily inflation.
Explain to me how workers wages in real terms have been falling since the 1980s, and yet we spend more. I suspect it has more to do with developers and other moneyed interests and people speculating on housing, oil and gas, and increasing consumption and dollars spent, rather than increased demand by the middle class which is rapidly sinking into poverty.
To begin with, while past class rank is, in the manner that investment funds are forced to admit, no guarantee of future performance, the likelihood that Professor Rigobon finished in the bottom half of his class is vanishingly remote. To level such a charge in the same paragraph that reveals feckless disrespect for what the man actually said rather compounds the crime. (See above.) Try Googling "Solman" and "Rigobon" as I just did -- and find the original transcript before writing, "Why should I believe any of his other analysis?"
But if paragraph one wilts under scrutiny, paragraph two deliquesces. Unemployment "wages" explain the rebound in spending in the United States? True, consumption would be lower without them, but we're talking here about millions of Americans making far less with their benefits than they did on the job -- and for a limited period of time. Is this not, to use your word, Mr. or Ms. Ldfl, "obvious"?
The bit about "tying salary to sales" eludes me, unless it's a simple misunderstanding of this point made by Rigobon:
"[U]nemployment insurance is rarely indexed to inflation. So, if you have a big inflation rate, you know, those earners will just have to lower their standards of living even further than what they have already lowered."
But let's move on to paragraph three, and the reason I'm bothering with an up-to-this-point sub-coherent complaint. Yes, of course "we" spend more due to the consumption of those who have benefited from economic growth "since the '80s" -- a minority of Americans which surely includes "speculators" and "moneyed interests." Who said anything different?
So why respond to a random cyber-rant? Because it reveals the mood out there these days, a mood I sense in interviews, though it's not put so bluntly in person or on camera, at least not to me.
Anger, mixed with the sense of entitlement to express it angrily. Incomprehension, alongside the self-delusion of understanding. Indignation, transmuted into an impulse to blame the victims, like those receiving unemployment benefits. It may not be true that, as the emailer concludes, "the middle class...is rapidly sinking into poverty." But if "middle class" means "most Americans," it surely isn't prospering as it once did. For those of you write in or tweet with questions like "When will the wealth gap have grown too wide?" -- consider the answer to Ldfl's email.