November 24, 2021
INFLATION IN THE U.S. ECONOMY IS CLEARLY A PROBLEM. There, I said it in all caps so that everyone can see I recognize it as a problem. The question is how big a problem. After all, we have lots of problems, millions of children in poverty, a huge homeless population, parents without access to affordable childcare, among others.
But none of these other problems has gotten anywhere near the same amount of attention from the media in recent months as inflation. These pieces have often been quite openly dishonest. The nonstop hype of “inflation, inflation, inflation” unsurprisingly leads many people to believe inflation is a really big problem, even if their own finances are pretty good, because they hear all those wise reporters at CNN, NPR, the NYT and elsewhere telling them it’s a really big problem.
CNN’s Milk Story Goes Sour
Just to give a few of my favorite examples, let’s start with the milk hoarding family that CNN found, who was being bankrupted by the price of milk. According to CNN, the family was really pinched because the price of milk had gone from $1.99 a gallon to $2.79 a gallon, and they buy 12 gallons a week.
The first point that many folks seized on is that this family buys 12 gallons a week. I suppose there are families that drink this much milk, but they clearly are not typical. CNN is not informing us about the typical family when they find an extreme outlier, who for some reason drinks a huge amount of milk.
But the second point is probably more important. Where did they find milk prices going up by 80 cents a gallon, or slightly over 40 percent? The Consumer Price Index shows that milk prices are up 4.0 percent year over year. There are differences for types of milk and by region, but it’s hard to imagine that there is anywhere in the country where milk prices have risen by 40 percent over the last year.
Since we have the national data, we know this increase is not typical. So again, maybe CNN has uncovered some extreme outlier family who gets gouged at the store where they buy their milk, but why are they presenting their story as typical?
Finally, we have the other side of the picture, the family’s income. This has likely risen a great deal in the last year, especially if our milk drinkers are a low or moderate-income family, as the piece suggests. The average hourly wage for production and non-supervisory workers is up 5.8 percent over the last year. It’s up 10.3 percent if we want to go back two years.
The increases are even larger towards the bottom end of the wage distribution. The average hourly wage for non-supervisory workers in restaurants has risen 12.4 percent over the last year and 13.5 percent over the last two years.
This means that the higher pay this family is getting is almost certainly swamping the impact of the rise in milk prices they are seeing. Yet, somehow CNN wants to tell us this family is being crushed by higher milk prices.
CNN also failed to mention the child tax credit. The child tax credit was increased from $2,000 a year in 2020 to $3,000 a year in 2021, with the credit for children under age 6 rising to $3,600. Furthermore, this credit is fully refundable, the limit on refundability for the prior credit was $1,400.
Since these big milk drinkers presumably have lots of kids, their additional income from the child tax credit should dwarf the impact of higher milk prices. In short, CNN’s story of low and moderate-income families being derailed by higher milk prices had no basis in reality.
The New York Times Is a Gas on Inflation
The New York Times decided to tell us that we are all suffering because of higher gas prices, running a piece saying that no one can afford to visit their family this Thanksgiving. As with the CNN milk piece, there is no mention of wage increases that most workers have seen since the pandemic began, especially those towards the bottom end of the wage ladder.
But, like CNN with milk, the NYT also plays silly tricks with gas prices. It tells readers:
“Millions of American drivers have acutely felt the recent surge in gas prices, which last month hit their highest level since 2014. The national average for a gallon of gas is $3.41, which is $1.29 more than it was a year ago, according to AAA.”
Well, last year the United States and the rest of the world were in the early stages of recovering from worldwide shutdowns that sent the prices of gas plummeting. If we go back two years ago, the Energy Information Agency puts the average price of a gallon of gasoline at $2.61 compared to the current $3.39. This means the current price is an increase of 78 cents a gallon or 29.9 percent.
That’s not trivial, but considerably smaller than the comparison to last year. A typical person drives their car roughly 10,000 miles a year, which means that if they get 20 miles a gallon, they buy 10 gallons a week. Higher gas prices would cost then cost them $7.80 a week.
If we go back to 2018, the average price of a gallon of gas was $2.75 in November. This means that a typical driver would be spending $6.40 more on gas a week compared to 2018 when their pay was considerably lower.
The NYT also managed to find the gas-guzzling equivalent of CNN’s milk hoarding family.
“Aldo McCoy, who owns an auto repair shop in Toms River, watched the numbers on a gas pump flash higher Wednesday as he filled up the tank of his 1963 Chevrolet Impala. He recalled recently filling his 2003 Cadillac Escalade and seeing the price go above $100, where it used to be $45.
“Mr. McCoy said he and his staff were working more than 15 hours of overtime each week to compensate for the extra money they spent on gas. He has also cut back on his household spending.”
Perhaps Mr. McCoy really does use a huge amount of gas, but then he is a very atypical person. If he is actually working an extra 15 hours a week to cover gas costs, this would come to over $105 a week at the minimum wage. If he and his staff get $20 an hour on average, the extra 15 hours would be $300 a week.
That additional income would be enough to cover the added cost of more than 230 gallons a week when measured against last year’s prices. It would be enough to cover the added cost of almost 470 gallons a week when measured against 2018 prices.
Readers of course have no idea how much Mr. McCoy actually drives, or what he drives, but if he buys hundreds of gallons of gas a week his expenses are very far from being representative of a typical American family.
National Public Radio Drains the Reserves to Trash Biden
NPR interviewed Tony Fratto, Deputy Press Secretary to George W. Bush. He told listeners why drawing down the strategic oil reserves to lower gas prices was a bad idea. The piece began with the cheap trick used by the New York Times, making a comparison between this year’s gas prices and last year’s pandemic depressed gas prices.
It then let Fratto make a number of misleading or inaccurate assertions without any pushback. First of all, Fratto neglected to mention that the release of reserves was being coordinated with China, Japan, and several other countries, which will make the impact on world oil markets considerably larger. Such a coordinated release likely would not have been possible with our prior “America First” president.
While Fratto trivialized the impact of another 700,000 barrels a day of oil on world markets, in fact, losses of oil of comparable amounts have often had a noticeable impact in prior years, such as when Libyan oil production dropped off due to its civil war. In the short run, demand for oil is highly inelastic (meaning it does not respond much to changes in price) so even limited changes in supply can have a substantial impact on prices.
Fratto also claimed that dipping into reserves to affect prices is extraordinary. In fact, many presidents have dipped into reserves to limit price increases, including President George H.W. Bush at the start of the first Iraq War and President George W. Bush after Hurricane Katrina idled capacity in Louisiana. The decision by President Biden to tap reserves to smooth markets as the economy recovers from a worldwide pandemic is very much in keeping with past practices.
The Media Has Decided Inflation is The Issue and Will Not Let the Data Get in the Way
We are likely to see many more stories along these lines in the weeks and months ahead as the media seem determined to say that inflation is the crisis of the century, no matter how much they have to abuse the data to make this point. They should be embarrassed to run pieces like the ones above, but unfortunately, shame has no place in policy discussions these days.
As I said at the beginning, inflation is a problem, but we need to look at the issue with clear eyes. There are good reasons for believing that many of the price increases we have seen in recent months are temporary and will be reversed. This is most notable with new and used cars, but also with many other items.
The spending-induced pandemic checks and unemployment insurance supplements are behind us. Saving rates are at normal levels, meaning that people are not spending down their accumulated wealth to any significant extent. If we can continue to bring the pandemic under control with vaccines and other measures, we can look forward to pretty clear sailing with the economy.