24 October 2006

Taxes, goods, inflation, and the Zucker ad

Now the recent Zucker tax ad for the Republicans can be seen here in its uncut form. It is uproariously funny and the Republicans should be glad that the folks doing this are *not* disenchanted Republicans! Thank your lucky stars that the alignment put one of the best satirical and comedy teams on the PLANET on the side of calling officious and misleading Democrats for what they are. The Republicans should be reminded that they came to power on smaller government, fewer taxes and less intrusive government, and one out of three is *not* good as the other two are now seen as not worth doing. Yes, you, too need the foreskin of deceit lifted so the steel wool scrub brush of reality can be applied.

And then we have complaints that the ad *ignores* the reduced spending capability of the average family! That is rich, coming from folks who see no need to reign in government spending. But, lets take a look at the foundation for their concerns, such as they are.

First the Bureau of Labor Statistics has a wonderful FAQ on the Consumer Price Index and what it actually measures. And anyone who has perused my works has seen a little item on the sidebar where there is a link to the BLS CPI Calculator so that you can do the inter-year comparison of buying power between years adjusted for the CPI. Now, what does it measure? Here is their outlay:

The CPI reflects spending patterns for each of two population groups: all urban consumers and urban wage earners and clerical workers. The all urban consumers group represents about 87 percent of the total U.S. population. It is based on the expenditures of almost all residents of urban or metropolitan areas, including professionals, the self-employed, the poor, the unemployed and retired persons as well as urban wage earners and clerical workers. Not included in the CPI are the spending patterns of persons living in rural nonmetropolitan areas, farm families, persons in the Armed Forces, and those in institutions, such as prisons and mental hospitals. The price change experience of the all urban consumer group is measured by two indexes, namely the traditional Consumer Price Index for All Urban Consumers (CPI-U) and the newer Chained Consumer Price Index for All Urban Consumers (C-CPI-U).
This is, then, city and suburban centric with high definition for those regions and adjustments necessary between the Urban and Rural populations. Now in the addenda for the next question in their FAQ they give this on the C-CPI-U:
Because the geometric mean formula is used only to average prices within item categories, it does not account for consumer substitution taking place between item categories. For example, if the price of pork increases relative to the prices of other meats, shoppers might shift their purchases away from pork to beef, poultry, or fish. The traditional CPI formula did not reflect this type of consumer response to changing relative prices. In 2002, as a complement to the CPI-U and CPI-W, the Bureau produced a new index called the Chained CPI-U (C-CPI-U). The C-CPI-U was created to more closely approximate a cost-of-living index by reflecting substitution among item categories. It is unlikely, however, that the difficult problems of defining living standards and measuring changes in the cost of their attainment over time will ever be resolved completely.
Damn those Americans for inventing things! So lower cost, higher calorie food is now widely available thus driving American eating habits. Between 1970 and 2003 the average caloric intake for ALL America went up by 11%. I remember the 1960's and 1970's and the fretting during that transition when there were still 'poor, hungry Americans'. Now we have poor, fat Americans. Food is way too cheap! If food maintains an average 'size' economically we find that while bulk sizing has decreased per price unit the amount of units available at a given STABLE or uninflated dollar value INCREASES.

The Food Marketing Institute collects this nice set of figures on the average weekly income spent in 2005 for all households in the US on food: $93. For a family of 3 to 4 it is $106. This industry group points out that the amounts Americans actually spend on food has been in a multi-decade decline with that being as a for both food bought in stores AND at restaurants. Americans spend 9.5% of their budget on food as compared to ever worthy France at 13%, Italy at 14.7% and all the way to folks in the Philippines that spend 47.5% of their income on FOOD. In comparison the US average American household in 1950 spent 20% on all food. The end of their graph is misleading as it indicates a relative stabilization but changes the time scale from decadal to annual. Once compressed the continued decline of the percentage is clear and continues. My guess would be that by 2010-15 the average American household will be spending less than 9% of their budget on food.

That $106 in today's money transported with equivalent spending power in 1931, in the midst of the "Great Depression" was $7.94. Eggs were a penny or so each, a loaf of bread was a nickel, a gallon of milk a dime, butter was in the pennies per pound range, and penny candy was a penny and quite a large amount way back when. I know this after having heard it from my extended family as I grew up and they told how hard it was to get food then, and really could not understand how people today could not find good food when it was so CHEAP compared to their income. Not only was that amount decent but wholly in line for a family spending over, and usually way over, their 1950's counterparts. So the actual, real cost of food has declined as I find the two-person household statistics to be fully in line and quite generous considering that I can get a package of Ramen Noodles at 12.5 CENTS on sale per package. That comes out to 1 single penny in 1931, but they HAD NOT BEEN INVENTED YET as a mass consumer item.

So let us end *that* idea that one's buying power has actually *decreased* for food purchases. Just the opposite has been and continues to be the case due to manufacturing and mass harvesting technologies. Coming into the 20th century the US was a rural nation with only a 30% or so of people living in urban areas. By the middle of the century that had not only flip-flopped, but the rural portion of the population was falling under 20%. So the CPI does measure a goodly portion of the economy based on where people *live*. Then buried at the very end of that addenda comes this nugget of information:
The CPI thus measures the rates of change in prices, rather than the level of prices.
So those quoting CPI statistics need keep this in mind. The process 'renormalizes' per year with the prior year now being he 100% baseline.

Now a bit further in the FAQs we find this on taxation:
Certain taxes are included in the CPI, namely, taxes that are directly associated with the purchase of specific goods and services (such as sales and excise taxes). Government user fees are also included in the CPI. For example, toll charges and parking fees are included in the transportation category and an entry fee to a national park would be included as part of the admissions index. In addition, property taxes should be reflected indirectly in the BLS method of measuring the cost of the flow of services provided by housing shelter, which we called owners' equivalent rent, to the extent that these taxes influence rental values. Taxes not directly associated with specific purchases, such as income and Social Security taxes, are excluded, as are the government services paid for through those taxes.
Mind you the BLS is having problems as the Nation is becoming a majority OWNER population vice RENTAL for property. So the CPI reflects the money BEFORE the Federal Government so nicely slips in and cuts out their portion for Federal Taxes and Social Security. When I was an active part of the workforce that was 1/3 of the money I made as an individual. And, as an individual growing up right in the tail end of the boomer period, I saw the easy spending cohort in front of me and realized that there was not going to be a Social Security system LEFT by the time I would need it and I never *counted* on it. And when I did, in actuality, need it, at least in a definitional sense, it had been so designed as to make it impossible for someone to actually GET the disability portion of it. Even when my employer, who was the Federal Government, said I was disabled for my work. I resent, bitterly, this daft notion that this is a *good thing* for the Nation as it makes individuals supplicants to bureaucrats. When one complains about the *size of government* it is that very thing that is talked about and the fact that 'entitlements' eat up the overwhelming majority of dollars sent to the Federal Government.

I am glad that Republicans saw fit to move discretionary taxation *down*. I am well, and truly, pissed at them for not doing a damn thing about the radioactive and toxic ENTITLEMENTS. As a temporary solution in the 1930's it was a so-so idea as industry recovered *without it*. Now the People are dependent upon it and it serves no good and much ill in taking away personal responsibility. The Zucker ad shows what the Democrats wish to do: ADD more taxes on the discretionary side, to give MORE entitlements that will eat MORE of my money and REDUCE it BEFORE the CPI is valuated. By encouraging the economy Republicans have, year on year, increased the overall size of the economy and *reduced* the deficit. And that is with a huge chunk STILL taken out for a useless SSN system that works to deny payment *first* and not give anyone the benefit of any doubt on anything. So much for 'presumed innocence'.

Next we have folks trying to add inflation to the CPI and say 'see it is all bad'. The BLS has a look at what its numbers are good for:
The "best" measure of inflation for a given application depends on the intended use of the data. The CPI is generally the best measure for adjusting payments to consumers when the intent is to allow consumers to purchase, at today's prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period. The CPI also is the best measure to use to translate retail sales and hourly or weekly earnings into real or inflation-free dollars.
So be careful in what it is, exactly, you are measuring as different things have different valuations for inflation. But remember that in that 'market basket' food has gone *down* as a percentage of the overall expenditure. That is why the BLS looks at 'category shifting' for purchases of typical goods and we also come to realize that since the 'basket' is set at 100% the part that is in decline will allow other portions to grow as part of that 100%.

And what, pray tell, does the BLS actually keep track of as part of this 'market basket'? They have a splendid DIY form and here are a few things you can take a look at: electricity, utilities both piped and gas, per therm, lots of different foods, Red and White Wine per liter, Vodka all types per liter, Bourbon per 750 ml, malt beverages per 16 ounces, pork and beans per 16 ounces, coffee (freeze dried, instant, plain, decaf, regular, and ground), potato chips per 16 ounces, cola diet and non-diet in cans or returnable bottles, more fruits and veggies than you can shake a farm economy at, ice cream per half pound. The main form selecting page so you can do all of your own statistical analysis from the BLS is here.

We have heard the complaints about the rising cost of health care in the US, from its 3-4% in the 1950's to its 13-15% today, depending upon who you talk to. The Health and Human Services folks look at this with this report and basically come up with no one knowing exactly what it means. Do note that from the point of view of consumers the percentage of their income spent on food went from 20% to about 9% and the cost of health care went from 4% to 15% which is an 11% swing and transition from food to health services. Drugs cost MORE than we expect, but no one complains about food costing LESS. You can, in actuality, pay the same amount that you paid in 1972, say, and then do *not* take any drug, test, medication or ANYTHING invented since then and you will start to figure out that you will die at a younger age. We have, as part of that wonderful basket, choices for things that were NOT AVAILABLE even three decades ago and we live to gripe about it instead of dying off early as was expected.

The reason the retirement age was set at 65 is that so few workers reached that age back in the 1930's that it was NOT seen as a problem. Now you can, on average, expect to live a good decade beyond that and the fruits of the labor of those still working for a living. When I hear about the complaints of things costing too much I do enjoy some of the things measured in the 1972 census. The following all had substantial percents and were seen as factors indicating wealth: indoor plumbing, electricity actually being available, telephone service, owning a television, owning a car, having washing and drying machines, having a dishwasher, having a refrigerator. Things you could not readily get then or did not exist: cellphones, personal computers, microwave ovens, VCRs, anything made with GoreTex or Kevlar or Teflon, pocket calculators, Walkmans, ipods, pagers, cheap airline tickets, *diet* foods that were not ethnic or religious based, DSL or cable Internet or even MODEMS, FedEx, major language translations done for free, computer games, role-playing games, free pornography, anything made by Microsoft or Apple or Cisco although that last was nearly there, cheap long distance telephone service, Global Positioning System devices, athletic footwear as it was known as sneakers and came in two varieties outdoor and basketball and cleats were a specialty item to be special ordered, the idea of a 'mutual fund' had not really taken off nor fractional stock ownership, a 'diversified retirement portfolio' meant a pension Social Security and not knowing what you were going to spend it all on in the few years you had left in in life, drugs called 'statins', non-penicillin based antibiotics meant 'sulfa', things known as a 'bile acid re-uptake inhibitor', balloon angioplasty, anything that was based on 'carbon fiber composites', plastic lenses for wearing, Compact Discs, Digital Versatile Discs.

So, for this very 'high cost of living' you also get more choices, longer life and, strangely enough, a strange concept of things costing less as you produce more of them to the point of 'mass customizing' items for individuals based on common material stocks. So when I hear about the 'poor in America' they are, per family: overweight, have $100 sneakers, have a television, have a VCR own one if not two cars, have a telephone if not cellphone, have a microwave oven, have indoor plumbing, have electricity and other utilities, have a washing machine, dryer, dishwasher, CD player integrated into one or more devices, and are, in general, living better than all but the most well-off Americans of three decades ago. In point of fact you have to start looking at some pretty high class industrial Nations before you find where the 'poor' in the US are considered the 'middle class'. And when you hit the Third World, our 'poor' live like royalty in comparison.

And to continue this trend I want to keep the money that I have earned and planned for to be MINE to spend and control, as the majority of that long list of things was driven by 'consumers'. I am deeply troubled by Republicans spending freely and increasing the plower and authority of government. I am horrified that the Democrats want to do it faster and with taking more from ME so that they can hand it out as THEY like without my oversight. At least Republicans have had the effect of growing the economy and lowering the deficit. I remember that the previous Democratic Administration only got somewhere by an economy that boomed due to the 'Internet Bubble' which was, perhaps, 5 years ahead of itself. The Democrats running TODAY are not business oriented and they hew to the previous outlook, which got us 'stagflation', 'malaise' and a non-response to a take over of American soil in Iran.

The Republicans are the Devil, but he, at least, must hew to the word of bargains, although that is now deeply eroded. They are becoming like the Democrats of a previous era: making promises they can not or do not want to keep.

The Democrats are Cthulhu and only understand that diminishment and chaos are their *friends*. They have not broken agreements because they don't bother to give any idea of what they stand for, outside of THEMSELVES.

I know both of these Devils very well and find the restriction to them an abomination for a Free People.

I want to vote 'no confidence' in the two parties, and shall do *just that* as going to Hell quickly or slowly is not a choice. But, once there, we can link up with the US Marines and regroup to get OUT AGAIN.

And finally have a Nation that honors the hard work of liberty, by making government stick to its few things it is given to do.

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