Summers: Inflation Reached 18% in 2022 Using the Government's Previous Formula
A new paper recalculating U.S. inflation with a pre‑1983 methodology that includes borrowing costs suggests prices effectively rose around 18% in 2022, far above official CPI figures. Commenters debate whether interest payments on mortgages, car loans, and other credit should count as part of “true” inflation, given their impact on cost of living and consumer sentiment, especially around housing. The exchange broadens into questions about how CPI is constructed, how well it matches everyday experience, and whether understated official metrics erode trust in economic policy and institutions.
CPI vs Alternative Inflation Measures
- Many argue CPI understates “real” inflation, especially since 1980s methodological changes (e.g., switching from mortgage costs to owners’ equivalent rent, quality adjustments, substitution).
- Others counter that large understatements (e.g., 3–5x) are arithmetically impossible when checked against decades-long price histories (gas, general CPI).
- Several suggest using multiple indicators: CPI, cost-of-living or “cost of thriving” indexes, and asset price measures.
Including Interest Rates / “Price of Money”
- The Summers paper’s core claim—adding borrowing costs to inflation—resonates with those who feel 2022 was exceptionally painful, especially for mortgages, car loans, and credit cards.
- Critics say this risks double-counting, blurs the line between price levels and financing methods, and creates circularity (using a rate-driven index to set rates).
- Some propose separate measures: one excluding interest for monetary policy, another including it to match household experience.
Consumer Sentiment vs Official Data
- One view: sentiment is “polluted” by negative media and shadow-stats narratives; survey data show many people expect real income gains and low personal job-loss risk.
- Opposing view: sentiment actually tracks older or interest-inclusive measures better; people are reacting to genuine cumulative cost increases, not vibes.
Historical Comparisons (1960s–80s vs Today)
- Nostalgic claims: a single male income could support a large family, home, and modest life; today two incomes barely sustain a smaller household.
- Pushback: average household sizes were smaller than claimed; many women already worked; crime and many QoL metrics (technology, health, amenities) are better now.
- Broad agreement that housing, education, and healthcare have risen far faster than CPI.
Cost of Living, Housing, and Inequality
- Housing scarcity (zoning, land costs, limited building post‑2008) is widely seen as central to perceived inflation.
- Debate over whether asset/land inflation and high corporate profits mean “greedflation” and policy skewed toward capital rather than the median person.
- Some emphasize that interest hikes hurt borrowers and renters, while asset owners and some retirees may benefit.
Trust, Politics, and Measurement
- Significant distrust that inflation metrics are politically biased to limit government outlays (e.g., Social Security COLAs).
- Others stress that CPI methods are transparent, heavily scrutinized, and roughly validated by independent projects.
- Goodhart’s law is invoked: once CPI became a policy target, it became a worse descriptor of lived inflation.