Empathy For The Bedeviled

Economists and policymakers have the luxury of spending their days debating the meaning of the word “transitory” and the extent to which it’s applicable to readily observable evidence of inflation manifesting across the global economy.

Analysts and money managers enjoy similarly fortuitous circumstances. That is, by virtue of being secure in their employment, already rich or some combination of the two, they have the luxury of observing the situation from afar (or maybe “from above” is better).

For the folks mentioned above, inflation isn’t a personal concern unless it spirals so far out of control that everyday goods and services become unattainable. At that point, it scarcely matters. Hyperinflation in advanced economies would presage societal meltdown. Academic debates would be irrelevant.

Everyday people, on the other hand, experience inflation. They’re bedeviled by it at every turn. And that experience informs expectations. Experiences differ by education level and income cohort. Just ask some consumers. The Fed did (figure below).

The figure (above) is from the latest New York Fed consumer survey. The undereducated and those making less than $50,000 are concerned about inflation both over the next year and on a three-year horizon.

They experience inflation differently than those with higher educational attainment and higher incomes for a simple reason. Less educational attainment generally means lower income, and the less money you have, the higher the proportion of what you do have gets spent on items for which prices are rising the most. Items like food and gas.

The figure (below) is the UN’s food index plotted with the monthly change in the US CPI food at home basket.

Given all of that, it’s safe to say the majority of consumers find the “transitory” versus “permanent” debate laughable, assuming they even know that such a debate is taking place among people situated higher up in the social pyramid.

Not laughable because it doesn’t matter to them. Rather, laughable because of course it matters, but they don’t have time to consider it because they’re too busy just trying to get by to ponder whether they’ll be struggling less or more five years from now. Either way, they’ll be struggling.

The reality of this situation is totally lost on the top 10% in America. The vast majority of people struggle economically. The upper-middle class understands there are poor people and many wealthy families engage in philanthropy both at home and abroad. But there’s an entire middle stratum which isn’t destitute but is nevertheless constantly in fear of falling through the cracks. That’s most Americans. Chances are, the person you see getting gas next to you is struggling. Same at the grocery store. And so on.

This is yet another instance where even well intentioned economists, policymakers and analysts are totally detached from the real world.

“Let’s talk about inflation,” says the tenured economist. “Well, let’s look under the hood of this month’s CPI report,” says the analyst. “I ran a regression,” says the former trader now writing short blog posts for Bloomberg on the terminal. To which the proletariat says,

I can’t pay for your Substack letter because it’s half of this week’s grocery budget. I don’t get bank research because… well, now that you mention it, I don’t really even have a bank. I mean, I have a debit card. And a checking account. But there’s nothing in there usually, and I’d actually rather just get rid of it, because every month I get charged a fee for not meeting a minimum balance requirement, both of which seem to rise over time. And the only “terminal” I know is the terminal cancer my spouse died from in part because we couldn’t afford good healthcare. But none of that is your fault, so how about you go to Walmart with me and help decide how to split up the $65 I can afford to spend on food for three kids this week. Oh, and wear some comfortable shoes. Because it’s at least possible we’ll run out of gas on the way there. I couldn’t afford to fill up this week. In fact, can you drive?

It’s not quite “Let them eat cake,” because many of the people having the “transitory” versus “permanent” debate are, in fact, well-meaning. But empathy is impossible. I reiterate that point time and again because I think it’s important we recognize life’s harsh realities. You can’t empathize with someone in whose shoes you’ve never walked. And even if you have walked in their shoes, you still don’t know how they experience the same hardship you experienced. Empathy, in a strictly literal sense of the word, isn’t possible.

If you ask the 430 fund managers who participated in the October vintage of BofA’s Global Fund Manager survey, the odds of inflation being something other than transitory are rising. “Transitory” garnered the lowest percentage yet, while “permanent” grabbed 38% (figure below).

“A majority of FMS investors think inflation is transitory, but the gap between ‘transitory’ and ‘permanent’ continues to narrow,” the bank’s Michael Hartnett said Tuesday.

At the same time, stagflation concerns (represented in the survey by responses indicating expectations of below-trend growth and above-trend inflation) rose 14 points from September (figure below).

Although the majority of investors “still expect above-trend growth and above-trend inflation,” the 61% who expect a “boom” outcome is down from a high of 76% in June.

The bank used the word “fear” to describe the rising light blue line in the figure (above).

Something tells me that for the survey respondents, who together control $1.3 trillion in AUM, “fear” is a misnomer. Unless “fear” means worrying about a modern day peasant revolt.

“It’s a can of corn, how much could it possibly cost? $12?”


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15 thoughts on “Empathy For The Bedeviled

  1. “ The memory of a toothache, is of course not the same as having a toothache. The person who has never had a toothache cannot empathize with someone who is having a toothache. One that has had a toothache can empathize but knows that the memory of pain is not the same as having the pain.” Sartre
    Yes Mr. H, even if one was poor it matters little now.

  2. That middle stratum H speaks of, and the strata below it, despite being more bedeviled by inflation and every other economic ill, are more likely to vote against the parties and policies that would improve their lot, than are the strata above.

    I refer, of course, to the yawning gap between the party and ideological affiliations of the more-educated and the less-educated.

    Shall we call them the bedeviled, or the bedazzled?

    1. Thinking of the hoops that need to be jumped through to vet any politicians (PAC, special interest, or even friends/neighbors) words is exhausting. Most people, myself included, don’t have the time, energy, or intellectual rigor to sift through increasingly efficient and effective misinformation campaigns.

      As the wealth divide grows the powerful have increasing incentive and resources to “shape” the public’s perceptions to their own.

      The “average” person has less time and ability to sift through the web of increasingly legal dark money misinformation campaigns.

      Big tobacco was incredibly successful decades ago and things have only gotten worse and will continue to get worse.

      1. IDK. It’s not that complicated. Rs want to cut benefits/social spending and cut taxes on the rich. Ds want mostly the reverse. From an economic pov, this is not exactly complex.

        What is complex is the social/value stuff. Ds are ‘liberal’/progressive or even woke. Rs aren’t. And, truth be told, most people are small c conservative.

        As someone was saying of liberal educated wealthy elites voting D, we’re voting our values against our economic interests too.

        So is that bedeviled, bedazzled or simply voting your values? After all, as soon as someone promised conservative value + social spending on them, lots of the lower classes voted for him… Yep, fascism is a real response to a real preference by a huge chunk of the electorate.

        So you can get social spending voted for, you just have to promise it won’t benefit the wrong ‘uns.

  3. Perhaps what the transitory to permanent shift lays bare is the inability of private enterprise to adapt to a global crises when it cannot enrich itself in the process. If these megacorps were really worried about their supply chains and lack of employment they could easily throw gigantic wads of cash at the problem. Onshore production, pay people 25 dollars an hour, and take a hit on the bottom line for the “greater good”. Corporate America is incapable of sacrifice because the executives are literally compensated to improve profits.

    You know what giant organization IS designed to take a hit to improve quality of life? GOVERNMENT, yes that’s right the big bad government has at its disposal all the money you could possibly imagine, land everywhere, people working in all different types of organizational structures who can be repurposed to solve these problems. But government is bad you say? Reagan told me that the scariest thing he’s ever heard is “I’m from the government and I’m here to help”! Well, guess what, perhaps we all should reconsider what government is supposed to be for. It’s not designed to protect the interests of insecure white men who feel entitled and afraid. It’s designed to take care of and protect the national interests, including dealing with crises of food and housing. Vote your conscious not your feelings.

    1. ” It’s not designed to protect the interests of insecure white men who feel entitled and afraid. It’s designed to take care of and protect the national interests, including dealing with crises of food and housing.” Actually, it is in fact designed to protect the interests of insecure white men who feel entitled. I think that quite accurately describes the founding of the United States of America.

  4. For decades I have been trying to persuade my economist friends that inflation is not a problem that is always and everywhere a monetary phenomenon, but rather is a problem better defined as an aggregated psychological response to rising prices and costs. I’m glad to encounter another voice with consonant views.

    Empirically speaking, YTD my revenues have been moving in inverse lockstep with the increase in gasoline prices.While that might be viewed as confirmation bias, it’s no less real. Pus, it has the benefit of being related to the price of an ongoing consumer purchase that is deemed too volatile to be part of official inflation measures.

    And yet people get pricing information from the food and energy markets every day.

  5. I received a letter from my ACA Health insurance provider recently that said they have applied to raise my premiums by 35% for 2022. For my wife an I, that’s raising our insurance by ~$5,000 for 2022. While we are not poor, this puts an enormous strain on any discretionary purchases we may have been thinking of. Plane tickets. Books. Christmas gifts. Just adding to pressure from other inflationary prices.

    In August, the Treasury sent a letter demanding we repay the COVID relief money we received. We qualified at our 2019 income level, but due to my “trading success” in 2020 and our need to spend realized gains, I had an unexpected tax bill as well failing to qualify for the relief. So that was another $30k or so out the damn window. Then the IRS sends a letter demanding repayment of the SS and Medicare deferrals. So, things are going great in this middle-American’s world. We are tightening up our budget to only essential purchases for the foreseeable future. And we have a low 6 figure income… Heisenberg Report is more important than Netflix, so no cost cutting there. Canceling Heisenberg would be like going blind…

    Good luck everyone.

  6. H: Now I know I love you. “I can’t pay …” Right on the nose. By the way that $12 corn isn’t far off. Canners can only do what they do once a year. Once the crop is in the cans there is no more so availability runs low and prices go the other way. Last year was harsh for those guys.

    1. CBOE MAR2022 down
      stabilized chart from huge rise
      There’s your future price of – well – everything.
      Let the strikes begin! Wait, they already have. Funny how the world freaked out over losing eyeball distractions and not Deere’s food producing machinery.

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