Yorkist, have you ever noticed that economic charts generally express values in "constant dollars" tied to some particular year? That's because values priced in monetary units, and that don't take into account inflation are inaccurately presented as growing faster than they really are. That's why "constant dollars" are used to negate the impact of inflation on real values.
So what causes price inflation, as opposed to growth in the value of an asset?
You should have read the next two sentences at Wikipedia -- although I don't really recommend Wikipedia as a great source of economic knowledge.
Also note that Wikipedia's first sentence speaks of the "general price level," not a change in the value of one product in relation to another.
Thus "the growth in the value of an asset is the same thing as inflation" is a fundamentally false statement. Indeed, inflation and the growth in the value of an asset are fundamentally different things. They are two separate causes for the monetary price of an asset increasing over time, one caused by the debasement of the money supply, the other indicative of any real increase in value of the asset measured in purchasing power in constant dollars.
Indeed, as any historic pricing chart illustrates by the use of "constant dollars", the impact of inflation must be subtracted from the increase in the monetary value of the asset over time to determine if the asset has increased in value or not. If the value of an asset remains constant in "constant dollars" it has not increased in value over that time period. It has only increased in monetary price, but has the same value in terms of purchasing power as it had before. If price inflation is running 10%, a bank account earning 5% interest is increasing in monetary units, but decreasing in value relative to all other products -- its purchasing power.
Thus the use of "constant dollars" in any discussion of the value of assets over a period of time... and the failure of the statement "the growth in the value of an asset is the same thing as inflation."
When one "asset" (I've been leaving it alone, but we're rather misusing the term "asset" here) increases in price, its price inflates. It's inflation with a little "i" if you will. The lump sum, or average, of all of those price increases and decreases is the overall index of price inflation, or big I. So the argument in this article is that when you're investing in a wide variety of "assets," if you will, you're betting on inflation. In reality, you're
hoping that the prices of your asset collection will rise faster than the aggregate of all "assets," but you're betting that they'll at least rise as much as inflation. It's a little more complex than that, but that's the gist of it.
I don't have a dog in this fight. It's hard to get polemical about something as complex as economics that you know a little something about, but not doctoral-level knowledge. Hell, determining the value of assets for financial statement purposes is something that I've had to think about on an almost-daily basis for several years now, and I can't even form a strong opinion about historical cost versus fair market value, except that historical cost means I don't have to think as hard and thus I like it better. The only opinion I have about social security is my "not wanting to see elderly people and orphans eating cat food under bridges" opinion. The only strong opinion I have about this article in this thread is that the argument isn't being properly understood.
And I don't appreciate the snottiness. I have an epically snarky and rude reply that I'm going to have to give myself a cookie for later today for not using, and I'm not using it because I try to be a good person and more than that, I want to maintain my level of goodwill within this forum. My broad (though very limited and, I'm sure, with some flaws) understanding of economics comes from the handful of classes - micro, macro, regression, blahblahblah - I had to take for my degree program. And made A's in, FWIW. I also don't appreciate the insult to Wikipedia, which I find one of the most awesome things ever. I remember the encyclopedia set we had when I was a kid in the mid-90's. It still had Czechoslovakia on its map of eastern Europe and we were missing the "F" volume, so if you wanted to look up, say, Franz Ferdinand you were SOL, and that totally sucked, and not only did those encyclopedias not practically instantly update themselves with new information but they were also incredibly limited in the amount of information they contained, and anyone half as nerdy as me should be thanking Jesus for timing their birth in the era of Wikipedia during their nightly prayers. I'm not even being irreverent, I rank Wikipedia slightly below "penicillin" and "the printing press" in technology that improves my personal existence.
Anyway. More from the wikipedia entry on inflation:
The term "inflation" originally referred to increases in the amount of money in circulation, and some economists still use the word in this way.
However, most economists today use the term "inflation" to refer to a rise in the price level. An increase in the money supply may be called
monetary inflation, to distinguish it from rising prices, which may also for clarity be called 'price inflation'.
[23] Economists generally agree that in the long run, inflation is caused by increases in the money supply. However, in the short and medium term, inflation is largely dependent on supply and demand pressures in the economy.
[24]
Other economic concepts related to inflation include:
deflation – a fall in the general price level;
disinflation – a decrease in the rate of inflation;
hyperinflation – an out-of-control inflationary spiral;
stagflation – a combination of inflation, slow economic growth and high unemployment; and
reflation – an attempt to raise the general level of prices to counteract deflationary pressures.
Since there are many possible measures of the price level, there are many possible measures of price inflation.
Most frequently, the term "inflation" refers to a rise in a broad price index representing the overall price level for goods and services in the economy. The
Consumer Price Index (CPI), the
Personal Consumption Expenditures Price Index (PCEPI) and the
GDP deflator are some examples of broad price indices.
However, "inflation" may also be used to describe a rising price level within a narrower set of assets, goods or services within the economy, such as commodities (including food, fuel, metals), financial assets (such as stocks, bonds and real estate), services (such as entertainment and health care), or labor. The
Reuters-CRB Index (CCI), the
Producer Price Index, and
Employment Cost Index (ECI) are examples of narrow price indices used to measure price inflation in particular sectors of the economy.
Core inflation is a measure of inflation for a subset of consumer prices that excludes food and energy prices, which rise and fall more than other prices in the short term. The
Federal Reserve Board pays particular attention to the core inflation rate to get a better estimate of long-term future inflation trends overall.
[25]
So, 62% of $160,000 (the Kindergarten example of 20 kids @ $8,000)... That's $99,200 for instruction. How does the main teacher end up with, what, only like, $25,000? Or is it closer to $30,000? Still.
Don't forget that the amount on a paycheck one receives and the amount of money that an employer spends on that employee are wildly different. Between the employer portion of health insurance premiums (my husband's is $14,000 a year, for instance), pension contributions, 401k/457b/whatever matching, payroll taxes, workman's comp insurance (?), etc. etc., the salary of a government employee doesn't represent much more than half of what that employee actually costs the organization.
I wonder how many teachers of K-12 would be happy with $63k a year?
I thought this was interesting, too--from the link:
Personally, I'm thinking it's time to try out my assistant professor skills.
You're really going to be wanting to try those skills out once I tell you how much
accounting professors make, which is, ahem,
double that.
The salaries of the professoriate vary
widely. You can have an accounting professor making $150k at an R1 and a history professor at a teaching university that qualifies for food stamps, in the same geographic region of the U.S. Just for the record, when I was making that point about professor's salaries, I was not denigrating the profession or saying they didn't deserve their salaries (shit, I have a few family members that are professors), just that government employee doesn't automatically mean poor. Another example - district attorneys in the rural dirty south make $100k or so. (Public defenders, however, make something like $30k and don't qualify for benefits in some states. Pretty effed up, no?)
Also, Chrissy, re: the biological imperative. What I meant was that you have a limited amount of time to have children. The reproductive drive bit wasn't my argument, LOL. Just that the way our economic structure works, the years that it's easy for (most) people to have kids are the same years that they're (usually) poor.
ETA: And also for the record, for anyone who may be thinking about grad school, you should never have to pay for a doctoral program. If the department doesn't have the resources to fund its graduate students, then it's not a good department. If they're paying for other students but not you, then they don't think you're worth investing in, and that bodes ill for how well you'll get along within that particular department at that particular university. Apply widely and accept the best funding package. That is my advice for potential doctoral students (*cough*, Chrissy) that don't know the rules of the road. The relationship is not unlike that of a writer and literary agent, actually.
