Pocketbook Theory – Mish vs. Wall Street Journal

On August 7, the Wall Street Journal showed results of a poll on voter discord. The Journal concluded “Voter Discord Isn’t Over Wages“.

by Mish

The Journal noted that in 2008 and 2009, 80% of those polled cited the economy as the biggest issue facing the country.

In a recent WSJ/NBC poll, the number was down to 27%. Citing wage increases, the Journal concluded “[discord] isn’t really about pocketbooks anymore.”

I challenged that notion in Is Voter Discord Over Jobs and Wages?

There are more visible problems thus more problems for people to choose. Race relations have gone downhill. There have been more shootings.
Social discord is about something, most likely jobs and wages, not racial incidents. Give voters enough choices and many will pick the hot topic of the day.
Proof comes from the popularity of Trump in the US and Brexit in the UK. If voters really believed the economy was improving, Trump would not have won the nomination with his message “Make America Great Again”.
The Journal says “Thanks largely to falling gas prices in recent years, pay increases are well above inflation.
Really? What about rent? Obamacare? Education? Student debt? Is the CPI remotely accurate? What about benefits? And how many people have to work multiple part-time jobs to make ends meet?
Are voters so angry about so many things they do not even know what to blame?

Pocketbook Theory

Please consider my ending paragraph vs. the ending paragraph of the Wall Street Journal.

  • WSJ: For many voters there are very serious and grim issues in this election, but it isn’t really about pocketbooks anymore.
  • Mish: People may cite race relations, police attacks, security, etc., but those concerns have their roots in something else: a feeling of slipping economically behind over a decade or longer, as the rich get richer and richer.

Why the Take II?

I bring this up because of two lines buried in today’s report on Productivity and Costs, Second Quarter 2016 by the BLS.

Due to a 4.7-percentage point downward revision to first-quarter hourly compensation, unit labor costs decreased 0.2 percent in the first quarter of 2016, rather than increasing 4.5 percent as reported June 7. Real hourly compensation decreased 0.4 percent after revision, rather than the previously-published increase of 4.2 percent.

Real hourly compensation declined 0.4% instead of rising 4.2% as originally posted!

Bear in mind that is on average, despite big increases in the minimum wage.

The Journal’s statement “Thanks largely to falling gas prices in recent years, pay increases are well above inflation” is pure hogwash.

The above from Doug Short’s report Real Median Household Income Up Slightly in June written July 21.

The median household is worse off now than in 2000 using government estimates of inflation and Sentier Research data.

For a project I am working on, Doug Short produced the following chart of real income growth. Annual data comes out in September so the chart is a bit out of date.

Real Median Household Income Growth Three Ways

  • PCE stands for Personal Consumption Expenditures. The PCE deflator measures the percentage change in prices of goods and services purchased by consumers throughout the economy. PCE is the Fed’s favorite measure of inflation. The above chart clearly shows why.
  • CPI-U is the official measure of consumer price inflation for urban consumers. Many feel CPI is understated.
  • CPI-U-RS is a BLS construct that allegedly attempts to estimate what the measured rate of inflation in the CPI for all urban consumers (CPI-U) would have been over the 1978-98 period had the methods now used been in effect since 1978.

As measured by the Fed’s preferred measure of inflation, households are doing well. As measured by CPI, the median household is no better better off than it was in 1968!

Mike “Mish” Shedlock