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OCInflation of the US Dollar [OC] (i.redd.it)

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[–]tcoop6231 1036 ポイント1037 ポイント  (50子コメント)

Please use a logarithmic chart for data like this.

Those little bumps and falls prior to 1950 represent MASSIVE price swings that get obscured by this type of chart.

[–]Sleekery 185 ポイント186 ポイント  (1子コメント)

Please use a logarithmic chart for data like this.

Showing inflation in linear data is at best a pretty severe mistake and at worst a deliberate attempt to mislead.

[–]jmac8122 119 ポイント120 ポイント  (27子コメント)

Can you explain why that is? I've never really understood using a log graph

Quick edit: is it because of scale? Like the price more than doubles, but you can't really tell?

[–]Sanguine_Abeyance 403 ポイント404 ポイント  (7子コメント)

Here the relevant change is percent change (i.e. a price increase of 5% is 5¢ if starting at $1, but 30¢ if starting at $6). So plotting the raw data makes the same 5% change look 6x bigger, even though we want it to look the same - hence the use of log scale

[–]JamesIgnatius27 52 ポイント53 ポイント  (3子コメント)

Thank you so much. I've never had that explained so well before.

[–]ikickrobots 7 ポイント8 ポイント  (0子コメント)

A true ELI5 answer! Thank you.

[–]little_foxes 10 ポイント11 ポイント  (0子コメント)

Thank you so much for this succinct reply. Some of the best teachers, especially math teachers, are just random men and women on Reddit.

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    [–]MistaSmiles 104 ポイント105 ポイント  (6子コメント)

    Whats bigger: From 1 to 2, or from 10,000 to 10,005

    [–]PleiadesSeal 3 ポイント4 ポイント  (2子コメント)

    Hold on, let me get my calculator... Anyone know where the "to" button is?

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      [–]5xum 8 ポイント9 ポイント  (0子コメント)

      Say you make 1000 dollars per month, and rent is 400 dollars per month. Is an increase of 4 dollars a large increase? So instead of 400, you are now paying 404 dollars per month. Would you say prices have risen by a lot?

      Now, say you make 10 dollars, and rent is 4 dollars. How do you deel about that 4 dollar increase now? Is raising rent from 4 to 8 similar to increasing rent from 400 to 404? Or is it similar to increasing it from 400 to 800?

      [–]Guoster 32 ポイント33 ポイント  (0子コメント)

      Because inflation is like compound interest, it is an exponential increase due to its "compounding" upon itself each year. Thus, a log scale essentially gives you a better representation of the data for comparison's sake (remember, log is base 10) by linearizing the data. It's essentially normalizing data.

      [–]jatjqtjat 7 ポイント8 ポイント  (0子コメント)

      Like the price more than doubles, but you can't really tell?

      yes, exactly that.

      [–]magnora7 4 ポイント5 ポイント  (0子コメント)

      On a normal axis, it's +1 each inch you go for example, but with a logarithmic axis, every inch you go up means the value doubles each time. This is good for showing things that increase as a percentage each year, like inflation

      [–]kai1998 13 ポイント14 ポイント  (3子コメント)

      If cheese goes from 1 dollar a pound to 2 and you only make 10 a week, thats significant and thats what happened in those early bumps: Prices shot up as a result of the government printing money for a war effort (Revolutionary, 1812, and Civil War). The constant inflation later in the graph is far less painful because it's only going up a few percentage points a year.

      [–]seeriktus 1 ポイント2 ポイント  (0子コメント)

      Think of it as change relative. So change relative to 1950s dollar, relative to 1960s dollar, relative to 1970s dollar etc. Because each year is building on the previous year. That's represented by ranges for each 10-fold increase (1->3) taking up a relatively larger area than the same increase at a higher range (101->103).

      A shift of 1->3 is a 200% change

      A shift of 101->103 is a ~2% change

      So what might look like a tiny blips in 1930 and 1975 on this chart were actually economic destruction.

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        [–]Ginkgopsida 45 ポイント46 ポイント  (10子コメント)

        It doesn't change the trayectory that much in log scale

        http://imgur.com/5TcS2Bz

        [–]PGL593 21 ポイント22 ポイント  (4子コメント)

        That's because the most appropriate way to display the data is by comparing the relative change in value as compared to the previous year. That's what inflation is. Here's a graph I made using the same data source as the OP:

        http://i.imgur.com/9ZCQZ0I.png

        This method matches the contour of other plots of inflation that can be found on the web like this one:

        http://www.in2013dollars.com/assets/img/US_Historical_Inflation_2017.svg

        To understand why the log scale isn't quite appropriate either, think of this: the value from 1774 has been compounded yearly over 200 times, while values from recent years have only been compounded a few times.

        OP's post history shows an interest in anarcho-capitalism, which would give him a motive to misrepresent data in order to support the Austrian School of Economic's distrust of central banks, fiat currency, and inflation.

        Edit:

        Here is some example data to illustrate the point further.

        These are graphs if inflation had been at a flat 1% every year since 1774. The first chart is displayed using the same method as OP's picture. The second graph is the same data using a log y-axis, as in the OP's "corrected" graph.

        http://i.imgur.com/QJ1yhBQ.png

        See how the second one is a straight line pointing up? Do you think that's a fair way to illustrate a completely flat and unchanging yearly inflation rate?

        [–]Uther-Lightbringer 1 ポイント2 ポイント  (0子コメント)

        You win, this definitely seems like the best way to represent the data.

        [–]alyssasaccount 1 ポイント2 ポイント  (0子コメント)

        To understand why the log scale isn't quite appropriate either, think of this: the value from 1774 has been compounded yearly over 200 times, while values from recent years have only been compounded a few times.

        I don't understand your point.

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          [–]MinotaurWarrior 48 ポイント49 ポイント  (1子コメント)

          1) No matter what it implies, you should always use a log scale for this sort of data

          2) This graph does make several points much easier to see. For instance, I didn't even notice that the US dollar had gone below it's 1774 value on OP's graph. This one also makes it clearer what's going on: we're inflating at about the same rate as during prior inflationary periods, but we've consistently stopped deflation. Which makes sense, as that's pretty much the core goal of the FED.

          [–]Maxnwil 7 ポイント8 ポイント  (0子コメント)

          Also, it gives the general indication that since 1900 we've been consistently inflating value, rather than some explosive inflation at 1950 or so

          [–]mijn_ikke 1 ポイント2 ポイント  (0子コメント)

          Don't forget to relabel your axis if you want to use this graph somewhere official; log axis can't have 0 as reference since multiplication with 0 always yields 0.

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            [–]jslingrowd 5 ポイント6 ポイント  (0子コメント)

            If the graph ended in 1950, will it exhibit the same significant spike the last thirty years?

            [–]gregofthe[S] 6 ポイント7 ポイント  (6子コメント)

            There's a log scale in the comments above

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              [–]GreenFox1505 462 ポイント463 ポイント  (7子コメント)

              Log scales. Log scales for exponentially driven values. Like inflation.

              This data is anything but "Beautiful".

              [–]chillinfrog 52 ポイント53 ポイント  (1子コメント)

              Also if OP could label his reference lines for $1 and 1971, rather than only mentioning them in the comments would improve the graph. Also, if they could label the year their x-axis starts on since it's not zero.

              [–]von_Hytecket 6 ポイント7 ポイント  (3子コメント)

              ELI5 ?

              [–]DrudgeBreitbart 41 ポイント42 ポイント  (2子コメント)

              Inflation is always compounding. If you have a $100 product you're selling and had 2% inflation last year, your product costs $102 now. Next year there is also 2% inflation, so your product costs $104.04. Eventually this compounding starts to get more and more pronounced and 'runs away'.

              The previous poster is suggesting to use a logarithmic scale which better illustrates the rate of growth than the actual underlying values.

              https://simple.m.wikipedia.org/wiki/Logarithmic_scale

              [–]von_Hytecket 0 ポイント1 ポイント  (1子コメント)

              On a logarithmic scale, each tick mark on the scale is the previous tick mark multiplied by some number.

              Thank you, that's kinda the bit I was looking for.

              To see if I understood it: If I'd want to analyze how even numbers behave, I'd put n (as in the nth even number, "2" would be the first, "8" the third) on the X axis, while I'd put the log on the Y axis. This means, I'd plot a straight line (y = 2), doesn't it?

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                [–]ElCapuccino 40 ポイント41 ポイント  (30子コメント)

                I feel like we're trying to have an economics discussion about monetary policy. Truth be told; inflation means little without GDP or velocity

                [–]dasheea 70 ポイント71 ポイント  (26子コメント)

                This is /r/dataisbeautiful if you just want to see a pretty structural change in a graph and call it a day. This is /r/dataisugly at its ugliest if you actually want to have an economics discussion.

                1. As many have noted, this should be in a log graph if you're graphing something that changes proportional to its own level.

                2. But the numerical definition of inflation is relative change in price level. This is a graph of price, or log price, not change in price. A much more useful way to represent this would simply to graph the change in percentage at each year of the price.

                3. Furthermore, what did a dollar buy back in 1774 and what does $30 buy today? These things are not actually the same. This is why there is such a thing as the CPI and other measures.

                People also often fail to discuss how painful deflation is, with some comments being the exception. One of the reasons why modern central banks encourage a small (~2%) inflation is precisely because 0% inflation or worse deflation can be really painful for the economy. Economists believe that it's better to live with the evils of (slight, consistent) inflation than risk the demons of deflation.

                Wikipedia already has great inflation graphs like here and here. Note how the inflation spikes were a lot more severe during the gold standard. And oh, deflation spikes existed back then, too. Note how deflation spikes (other than around the financial crisis) have been completely eliminated after we went fiat. (Seriously, imagine living in a world where every few years, you are experiencing 10% inflation or 10% deflation.) In order to understand why we keep a fiat system, we all need to better understand (including me) how bad deflation is, and how bad those inflation/deflation spikes were back then. Those graphs show why economists shake their heads at people who advocate going back to a gold standard.

                [–]ElCapuccino 12 ポイント13 ポイント  (5子コメント)

                Yup, this is pretty much what I was getting at, but didn't want to really bring it up. On the interwebs "inflation" is a trigger word.

                [–]keybr 2 ポイント3 ポイント  (4子コメント)

                Dumb but interested guy here.

                As many have noted, this should be in a log graph if you're graphing something that changes proportional to its own level.

                Can you explain why this is? Also, how can I generate such a graph?

                Thank you for the thoughtful breakdown.

                [–]Lacklub 2 ポイント3 ポイント  (0子コメント)

                This comment explains why you want it.

                As to how you generate it, right now each data point has a value ($$$,year) which get mapped to an x,y point on the graph.

                To get a log graph, you literally just take the log of the value. So you make (log($$$),year) correspond to the x,y of the point on the graph.

                For example, using base 10 log: if the dollar is at 10 on the current graph (around year=1975) then it gets moved to log(10) = 1 on the new graph. All the points around 1 on the current graph get moved to 0 on the new graph (log(1) = 0). Those few times when it dips below 1 on the current graph will be negative values (log(0.9) < 0)

                As an aside: this is technically a semi-log graph because only one axis is logarithmic, the other is linear. Sometimes you want both to be logarithmic, but this is not one of those times.

                Edit: it doesn't really matter which base you use for the log. It has different values on the y axis, but it's good form to just convert the y axis labels to the value before the log (so instead of having equally spaced -1, 0, 1; you have equally spaced 0.1, 0, 10

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                    [–]cule4444 6 ポイント7 ポイント  (1子コメント)

                    This guy economics, I always chuckle when people have graphs like this and scream ermagod inflation!, you can't analyze inflation on its own, its more complicated than that, inflation is also a result of economic growth, the spike that you see on the graph is also due to the massive economic expansion that we have had since the end of WWII, yes prices have increased but we are also a hell of a lot richer per capita than we used to be pre WWII.

                    [–]flued 1 ポイント2 ポイント  (0子コメント)

                    Inflation isn't a result of economic growth, if the economy grows but money supply remains constant then deflation sets in, so they expand the money supply to help stabilise it.

                    Inflation is a direct result of the economy shrinking though, if the money supply is constant, but the economy shrinks, and it's much harder to remove money than create it.

                    [–]burnshimself 45 ポイント46 ポイント  (1子コメント)

                    This sub is so shit, how the hell is this not logarithmic. This is the kind of garbage people show in politicized environments to try to suggest inflation is out of control when in reality they've just skewed the scaling.

                    [–]explosivecupcake 47 ポイント48 ポイント  (18子コメント)

                    From this graph it appears that historically high levels of inflation occurred shortly after 1950, and from that point onward there seems to be an exponential increase. I'm not sure that abandoning the gold standard later in 1971 entirely accounts for this pattern, so I looked for another potential explanation.

                    The best I could find came from Thoma (2007) who points out the rapid expansion of inflation occurred not only in the US, but world-wide in the 60s and 70s (here's a graph which compares five countries during that period). He argues the following:

                    "...the Great Inflation resulted from the replacement of the remarkably sensible economic framework of the 1950s with the fundamentally misguided framework of the 1960s. The inflation persisted throughout the 1970s because policymakers replaced one bad model of the economy with another."

                    Thoma elaborates on this point as follows:

                    "In the 1960s, policymakers clearly adopted a different model. Estimates of a 'reasonable and prudent' goal for normal unemployment were substantially reduced by the Kennedy and Johnson administrations and by the Federal Reserve (Council of Economic Advisers, 1962, p. 46). And, as has been stressed by a number of scholars, a belief in a permanent trade-off between inflation and unemployment briefly held sway. These views led to highly expansionary monetary and fiscal policies, and inflation and booming real growth resulted."

                    "Around 1970, policymakers adopted a natural rate framework, but with an overly optimistic estimate of the natural rate. This view led to a half-hearted attempt at disinflation in 1969 and 1970. The result was that inflation was temporarily slowed, but not squelched."

                    So, perhaps abandoning the gold standard is a symptom of a monetary policy which spiked inflation, rather than a cause?

                    [–]alyssasaccount 23 ポイント24 ポイント  (12子コメント)

                    From this graph it appears that historically high levels of inflation occurred shortly after 1950

                    That's false, and you think that because the graph is not plotted on a log scale, as it should be to make visual comparisons possible.

                    [–]coffee_achiever -1 ポイント0 ポイント  (11子コメント)

                    No your statement is false, as a different post later also posted the log scale, and you can clearly see the break in rate around 1933 when FDR took the US off the gold standard. Before that there would be inflation, then deflation, but the dollar would roughly hold it's value. After, clearly nothing but inflation, and at an increasing rate during the late 60's 70s, then reigned in somewhat, but still on the constant upward trajectory.

                    [–]alyssasaccount 5 ポイント6 ポイント  (6子コメント)

                    Before that there would be inflation

                    Precisely. Like massive inflation on short timescales — far beyond anything we have seen since WWI.

                    And yes, followed by deflation, itself not a good thing, though for some strange reason you seem to be portray it as good.

                    But you can't see almost any of the structure showing the huge swings on the timescales actually relevant to people's lives, and it's hard even to see that the 30 years preceding and including the War of 1812 were similar to the 30 years from 1950-1980.

                    The main feature you see in the linear scale is the increase by a factor of ~3 since 1980 (when inflation was actually a significant problem), which itself swamps the period of very high inflation in the late '70s, where prices doubled in less than a decade.

                    You're so fixated on the coincidental approximate linearity that you don't seem to care that it makes inflation in the 2000s look as bad as in the 1970s, which is completely absurd.

                    [–]jamesinger 7 ポイント8 ポイント  (3子コメント)

                    at an increasing rate during the late 60's 70s, then reigned in somewhat, but still on the constant upward trajectory

                    Which is fine. The 70s experienced very high inflation which was bad. The Fed has managed stable inflation rates ~2% ever since.

                    [–]kmar81 5 ポイント6 ポイント  (3子コメント)

                    You are absolutely correct about the fact that closing the Gold Window was the result and not the cause of the inflation. The US abused its privileged position within the Bretton Woods system and there were several minor incidents between the US and other - mostly major European - countries regarding the monetary policies, although it is true that everybody inflated like crazy at the time. Printing money is the easiest way to finance government spending without immediate negative effect on the economy. People usually don't understand inflation and it is simply more politically convenient than raising taxes, although requiring incremental increase rather than big increase with new taxes. The disparity between the "gold value" and the "market value" of the dollar led to the oil crisis which was the attempt to adjust the real price of oil in gold/formal exchange rates to the devalued US dollar.

                    [–]Seventeen34 2 ポイント3 ポイント  (0子コメント)

                    The Prize (Daniel Yergen, covering history of the oil industry) ties it at least partly to continued nationalization of the oil industry worldwide (KSA I think being the most significant) and a generally greater assertion of influence from oil producing nations. Even those that had nationalized had done so while maintaining preferential relationships with some oil companies and markets. In the period after 1950 and through the 70s countries began selling oil at market prices to everyone and coordinating on price and production (OPEC) while nationalizing.

                    The argument goes that there was underpriced, endless oil fueling the world (and US economy) that relatively suddenly increased in price and decreased in supply. The rising oil costs drove up costs throughout the economy as prices adjusted.

                    He does a much better analysis.

                    [–]hillbillytendencies 18 ポイント19 ポイント  (6子コメント)

                    A quick glance tells me the invention and availability of television is the catalyst.

                    [–]darien_gap 18 ポイント19 ポイント  (3子コメント)

                    Obviously false, it was the introduction of Jif peanut butter.

                    [–]JTibbs 7 ポイント8 ポイント  (0子コメント)

                    You are both wrong. It all started with the invention of pre-sliced bread in 1927.

                    Peanut butter merely exacerbated the problem, and television just served to enhance its delicous gooey spread across the country.

                    [–]HeWhoWalksQuickly 0 ポイント1 ポイント  (0子コメント)

                    With the introduction of jif peanut butter, people were better nourished than before, causing them to work harder and productivity to go up. For reasons, higher productivity causes inflation.

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                      [–]HeWhoWalksQuickly 2 ポイント3 ポイント  (0子コメント)

                      Obviously. With the television, people saw more ads, meaning they bought more products, which caused inflation, because economy.

                      [–]novaft2 2 ポイント3 ポイント  (0子コメント)

                      Defecit spending almost perfectly coincides with this graph

                      [–]gregofthe[S] 139 ポイント140 ポイント  (293子コメント)

                      This chart shows what a 1774 dollar would be worth in the currencies of each of the years along the X-axis, in the US. There is a horizontal line at 1 (indicating no net inflation since 1774). There is also a vertical line at 1971, the year the US came off the gold standard. Plot made in R.

                      The source for this data was obtained from Dave Manuel who in turn got his data from Oregon State.

                      Reuploaded, because I originally used the wrong year for the gold standard.

                      [–]streichholzkopf 262 ポイント263 ポイント  (261子コメント)

                      since inflation goes exponentially (if there's a constant inflation rate) wouldn't it be more appropriate plotting this logarithmically?

                      nice anyway!

                      [–]gregofthe[S] 396 ポイント397 ポイント  (118子コメント)

                      Log scale: http://imgur.com/5TcS2Bz

                      [–]Lovv 54 ポイント55 ポイント  (111子コメント)

                      Doesn't look too bad actually after 1900. Especially when you factor in the recession.

                      Edit: great recession.

                      [–]TheRealDJ 49 ポイント50 ポイント  (54子コメント)

                      The continual growth only really begins after America went off the gold standard in 1933. Otherwise spikes are usually in concert with major recession or war such as civil war in 1865 when monetary supply is relaxed to pay for debt.

                      [–]tiedyedvortex 12 ポイント13 ポイント  (22子コメント)

                      America actually kept the gold standard until 1971, when Nixon got rid of it. It was initially supposed to be temporary but in 1973 they decided it would be permanent.

                      [–]Coolshitblog 33 ポイント34 ポイント  (5子コメント)

                      After 1933 the Gold Standard - as it existed from the end of bimetallism in 1900 - was suspended. You could no longer redeem U.S. currency for gold. Additionally, the price of gold (for Foreign Exchange purposes) went from $20.67 per ounce to $35. The government was also no longer required to keep a 1:1 reserve ratio of gold for dollars. It was now a fractional gold reserve. That means the Federal Reserve could print money without gold backing - as long as they could defend the exchange rate in the market. The reason Nixon "ended" the gold standard in 1971 is because the $35 rate was no longer defensible.

                      [–]Planner_Hammish 15 ポイント16 ポイント  (1子コメント)

                      The reason Nixon "ended" the gold standard in 1971 is because the $35 rate was no longer defensible.

                      This isn't true; what happened was that France traded in their US reserve currency for gold under Bretton Woods, and that basically wiped out the US gold reserves. So before other nations tried to do the same he ended it/exited the treaty.

                      [–]Coolshitblog 2 ポイント3 ポイント  (0子コメント)

                      The reason that France did that was because the official exchange rate was no longer defensible. If the official gold price is $35 per ounce, but the market price of gold is $40+ per ounce or more; you cash in your dollars for gold. You do it before anyone else does because under a fractional gold reserve you KNOW that the Americans don't have enough gold to back all potential redemptions.

                      [–]52fighters 7 ポイント8 ポイント  (2子コメント)

                      Might check out the Nixon Shock. Until he closed the gold window, the US did exchange dollars from overseas for gold.

                      [–]Coolshitblog 1 ポイント2 ポイント  (0子コメント)

                      That's correct. I thought I'd noted that in my original comment, but re-reading it now I didn't explicitly state that other countries could still redeem their dollars for gold (if you're the Bank of England, let's say). That's what I was alluding to when I said the $35 price of gold was no longer defensible by 1971 - the gap between the official price and the market price of gold had widened so much, other countries started redeeming their dollars for gold.

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                        [–]TheRealDJ 8 ポイント9 ポイント  (0子コメント)

                        1933 is when gold was essentially forbidden to be traded by banks to their customers and when most private gold as currency was siezed by the government for a set price($20. 67 per ounce), then massively inflating the price you could buy it from the government ($35) which effectively also changed the way inflation would work. While you could still own gold, you essentially could no longer use it as a currency. 1971 is when the final nail was put in the coffin when the government would no longer trade gold for a fixed price.

                        [–]wyvernwy 5 ポイント6 ポイント  (0子コメント)

                        Gold standard. If the total amount of known gold represents the global economy, what mass of gold represents a base unit of currency? I suppose this is another way of asking "what would be the price of a mole of gold in [¥€£$] in a global gold standard?"

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                            [–]buuda 30 ポイント31 ポイント  (48子コメント)

                            Especially when you realize each deflationary period pictured was a depression. The 1870's depression was called the Great Depression until the 1940's. Every railroad company in the country went bankrupt.

                            People who are scared of inflation often post this. But what I have come to realize is that deflation is even worse as it crushes people in debt (most poor and small businessmen) and makes the rich's assets more valuable. Farmers and progressives were begging for inflation in around the 1900's as farmers had to go into debt to farm their fields and a year later their debts were worth more in real terms. The film The Wizard of Oz is about how the Gold Standard (yellow brick road) is the road to ruin and the Wizard of Oz is the Federal Reserve.

                            In these times, why would the wealthy allow runaway inflation when it ruins the value of their bonds and benefits those in debt by making those debts cheaper in real terms?

                            [–]thats-fucked_up 4 ポイント5 ポイント  (10子コメント)

                            It's not, but cool story bro

                            [–]Lovv 16 ポイント17 ポイント  (2子コメント)

                            Ok so op was incorrect about the wizard of Oz but that doesn't really mean the rest of his post wasn't good.

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                              [–]djt45 3 ポイント4 ポイント  (14子コメント)

                              how does deflation crush people in debt

                              [–]Arthur_Edens 20 ポイント21 ポイント  (10子コメント)

                              Because wages drop, but your mortgage (and any other debt you have) stays the same.

                              [–]jamesinger 16 ポイント17 ポイント  (0子コメント)

                              It stays the same nominally, which is to say that it grows in real terms.

                              In a deflationary depression you find yourself both out of work and with debt burden growing faster than whatever interest rate might be attached to it. Not good.

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                                [–]Coolshitblog 8 ポイント9 ポイント  (0子コメント)

                                Because the real value of your debt increases over time. If you owe $100 today and the value of $1 doubles in 5 years - you now owe $200 in present day money.

                                Inflation works the other way. If you owe $100 today and the value of $1 halves in 5 years - you now owe $50 in present day money.

                                On the flip side - inflation is TERRIBLE for savers and people on fixed incomes.

                                [–]easyasNYC 3 ポイント4 ポイント  (0子コメント)

                                It's the opposite of inflation, for instance, if I owed you $100 in 1900, and said id pay you back today. That $100 dollars equals months of work in 1900 compared to a day of minimum wage labor in 2017. If there were an equal amount of deflation, that small $100 loan equal to a day or 1900 labor, would now take months to pay back. If there is deflation, I will hold onto cash because its value will increase just due to deflation, if there is inflation, I will lose money by holding cash, which provides an incentive to invest in the economy. which is why a small amount of inflation is generally a good thing.

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                                  [–]PotentPollen 2 ポイント3 ポイント  (4子コメント)

                                  I mean, it does look kinda bad considering we live at the far end of the figure (if you live in the U.S.). It looks like generally most inflation is being corrected until Nixon, and then it goes pretty wild.

                                  [–]TheMania 8 ポイント9 ポイント  (0子コメント)

                                  Predictability is what matters in prices, not trying to push the currency back to some historical value repeatedly (to what end?)

                                  [–]Lovv 1 ポイント2 ポイント  (2子コメント)

                                  Depends on if you think deflation is a bad thing or not. 2% is what most economists think is a good goal.

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                                    [–]12358 7 ポイント8 ポイント  (1子コメント)

                                    Thanks. Can you please post another log plot with the vertical scale in dollars rather than log dollars?

                                    [–]LanfearWosie 5 ポイント6 ポイント  (0子コメント)

                                    Ugh, just the scale, not take the log of the values...

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                                      [–]cblou 41 ポイント42 ポイント  (10子コメント)

                                      Seconded, can we see this on a log scale?

                                      [–]MadeWithHands 9 ポイント10 ポイント  (8子コメント)

                                      Could you ELI5 what is log scale and why does it make the same data look so different?

                                      [–]cblou 39 ポイント40 ポイント  (0子コメント)

                                      Year to year, we are more concerned about the percentage of variation than the absolute variation. For example, if the price of a banana is $1.00 in 1900 and $1.10 in 1901, it is more interesting to know that the variation is 10%, not $0.1, as the same banana might be $20 in 1950, so a $0.1 change is not much by then.

                                      The log graph has the property that moving along it by one unit will multiply the value represented by a constant amount, no matter what the original value is.

                                      [–]TonyExplosion 4 ポイント5 ポイント  (6子コメント)

                                      Log scales means each tick is a logarithm of the number it normally would be. It is helpful for looking at large quantities of data.

                                      Also other functions that are exponential when plotted in the log scale become linear. as the log is the natural opposite of taking an exponential of a number.

                                      [–]alyssasaccount 17 ポイント18 ポイント  (1子コメント)

                                      It is helpful for looking at large quantities of data.

                                      It's specifically helpful in looking at data where ratios matter more than absolute values. Prices are about the single best example of that, and it's true whether you're looking at some inflation indicator or stock prices or wages or exchange rates or anything else that involves money.

                                      [–]MadeWithHands 5 ポイント6 ポイント  (3子コメント)

                                      C'mon man I said explain like am 5 not like am math professor.

                                      Jk jk. Thanks for the extra info. I know some of those words.

                                      [–]SirSourdough 4 ポイント5 ポイント  (2子コメント)

                                      Not directed at you in particular, but it's kind of depressing that people don't pick this stuff up in school. Nothing in there goes beyond high school math.

                                      For anyone left wondering:

                                      All of these are worth knowing, even if only a basic level, because they'll really help you interpret graphs that are put in front of you in the news. Plus, compared to some of the really arduous shit in math, they are conceptually pretty easy. If you can multiply you can learn all of these concepts.

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                                        [–]slashcom 2 ポイント3 ポイント  (37子コメント)

                                        If we had hit the Fed's present day inflation rate goal of 2% the entire 242 years, that dollar would now be $120.57, about four times that graph!

                                        [–]alyssasaccount 14 ポイント15 ポイント  (7子コメント)

                                        Yup, and that would have no impact on your life whatsoever, except that the history of boom/bust cycles during the 1800s would probably look quite different.

                                        [–]Anathos117 5 ポイント6 ポイント  (4子コメント)

                                        except that the history of boom/bust cycles during the 1800s would probably look quite different.

                                        A big part of that was the gold standard. Any time there was an economic crisis people rushed out to buy gold because it's traditionally viewed as a safe store of value. The sudden massive increase in demand drove up the price of gold, but because the dollar was pegged to the value of gold the value of the dollar would increase too. The result was massive deflation and the layoffs and wage cuts that causes.

                                        [–]alyssasaccount 4 ポイント5 ポイント  (3子コメント)

                                        I tend to agree, though I wasn't really trying to make an argument along those lines, but only that absolute dollar values have no meaning, so if we were to magically re-denominate our currency overnight, it would make no difference.

                                        [–]Anathos117 1 ポイント2 ポイント  (2子コメント)

                                        absolute dollar values have no meaning, so if we were to magically re-denominate our currency overnight, it would make no difference.

                                        Can't disagree there. I think Mexico actually did this.

                                        Just looked it up. In '93 they re-denominated by a factor of 1,000.

                                        [–]Bounty1Berry 3 ポイント4 ポイント  (1子コメント)

                                        There are other reasons to do it, though. A lot of countries do it. Russia in 1998, for example.

                                        It can be a marketing/posturing/feel-good thing-- we're confident enough that we've got control over the economy that we're ready to start fresh.

                                        It can also be a way to shock drive the currency out of the economy. If you suspect there's a lot of money floating in the black market, it's a good reason to make everyone hand it in for inspection. See India's recent 500/1000 rupee squabble, or South Korea knocking one zero off their currency in 1962.

                                        [–]Anathos117 2 ポイント3 ポイント  (0子コメント)

                                        That's really cool. I hadn't considered the black market angle.

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                                            [–]kittenTakeover 9 ポイント10 ポイント  (29子コメント)

                                            Just because it has a point of dramatic increase doesn't mean it's exponential. The point where is starts to increase is said to be around when we went off the gold standard. Also, if you look closely after that point it looks pretty linear.

                                            [–]just_lift 47 ポイント48 ポイント  (1子コメント)

                                            But since it's expected to be exponential, it would be nice to see a log plot to see if it actually is exponential or not.

                                            [–]kittenTakeover 1 ポイント2 ポイント  (0子コメント)

                                            It would be interesting. Now I'm curious too! It looks very linear. Exponential data is usually pretty easy to identify on the right side of the hockey stick.

                                            [–]TDaltonC 22 ポイント23 ポイント  (7子コメント)

                                            They're not saying that it looks exponential, they're saying that inflation is exponential. The rate of change of to the value of a dollar is proportional to the value of a dollar. That's the definition of exponential.

                                            [–]kittenTakeover 1 ポイント2 ポイント  (5子コメント)

                                            And I'm saying that the data appears to show that that inflation has not been exponential for about 40 years. Maybe theoretically it's expected to be exponential, but it does not appear reality has been paying attention, assuming that the data in the post is correct. Either that or inflation was just much much higher before the gold standard and masks the trend afterwards.

                                            [–]alyssasaccount 17 ポイント18 ポイント  (15子コメント)

                                            It should be exponential because what matters is the ratio of prices in two different years for a basket of goods, never the absolute difference. What the numbers actually look like doesn't figure into it at all.

                                            [–]liqamadik 6 ポイント7 ポイント  (2子コメント)

                                            Just like GDP growth, income growth, and population growth; inflation is generally represented as a percent because in healthy economies that percent tends to be steady across the years. It may make sense for the price of bread to go up 10¢ from 2016 to 2017, but it going up 10¢ from 1776 to 1777 would be insane. So even if the trend isn't logarithmic, if we want to compare the trend to what it should be, we have to put it on a logarithmic scale.

                                            [–]TheRealDJ 2 ポイント3 ポイント  (10子コメント)

                                            In a stable money supply, there should actually be deflation due to efficiencies in production.

                                            [–]hacksoncode 16 ポイント17 ポイント  (9子コメント)

                                            Which, fundamentally, is the problem with stable money supplies.

                                            [–]DarthShiv 0 ポイント1 ポイント  (3子コメント)

                                            Depends on what you are after. If wage growth is stagnant then linear graphs tell the story you're after if you want to see impact on those incomes.

                                            [–]Gr_Cheese 15 ポイント16 ポイント  (0子コメント)

                                            Oregon State did not generate this data, they pulled a few measures of CPI from the BLS (like everyone else) and spliced them together. If you want data series like these in the future, I would recommend the FRED--they have a very good graph tool.

                                            It might be interesting to see this graphed against the real price of gold, since so many people think holding gold is a good hedge against inflation.

                                            [–]SamSlate 8 ポイント9 ポイント  (9子コメント)

                                            how do you define a dollar prior to 1792? and what are you basing the value on? I can buy a house for 30,000 that would have taken 10 years to make in the 18th century.

                                            A basket of goods available 200 years ago costs almost nothing today. How do you compare the value of a thing when the value of what it buys is constantly deflating?

                                            [–]Bounty1Berry 1 ポイント2 ポイント  (4子コメント)

                                            Yeah, I was frustrated by the definition of the dollar too. Even assuming it's something logical like "the bullion value equivalent to a Spanish Colonial 8 reales coin", how do you compensate for the bimetallic nature of the currency?

                                            There were plenty of moments in US history where you could say "this 27 grams of assayed silver is worth about 70 cents in gold coins, but this 27 grams of equal fineness silver is worth 100 cents, because the Mint stamped a pretty design on it."

                                            It would be an interesting graph to show, say, the purchasing power of a melted down 8 reales worth of silver, in one line, and the purchasing power of a melted down 1/2 escudo of gold in another. There'd be a lot of interesting bumps when there were supply surges in one metal but not the other.

                                            I also see your point on the basket of goods too. Perhaps there's a historian-standardized basket they use, dropping and adding things at different time periods, like how the Dow Jones index changes out companies.

                                            [–]SamSlate 3 ポイント4 ポイント  (2子コメント)

                                            Perhaps there's a historian-standardized basket they use

                                            there is, it's called a consumer price index (CPI). I thought this was r/economics: explains the comments here, lol.

                                            [–]gbt-dog 1 ポイント2 ポイント  (1子コメント)

                                            CPI is effected by hedonics, substitution, and weighting. It's a politicized metric really.

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                                                [–]brokerthrowaway 1 ポイント2 ポイント  (2子コメント)

                                                I've asked this elsewhere, but maybe you could give me an answer or point me in the right direction.

                                                Could you do this same work except for the British Pound? I've been researching my geneology and followed my family all the way to England in the 1550's. Found the value of the estate of one of my grandfather's who passed away in Nantucket in the early 1700's. His estate was worth roughly 6000 pounds. I've tried googling and it seems like converting the purchasing power between such a long time isn't very easy.

                                                Is there any way for you to tell me how much that 6000 pounds would be worth today in USD? It's useless info, but it'd be a fun tidbit for me.

                                                [–]Bounty1Berry 4 ポイント5 ポイント  (1子コメント)

                                                One very, very back-of-the-envelope approach would be just to consider it in bullion value.

                                                In the early 1700s, a common gold coin would have been the guinea (21 shillings, 1.05 pounds decimalized). Today, one of those has a melt-down value of about $288. 6000 pounds worth of them would be about $1.65 million in bullion value today.

                                                Or if you approach it from a silver perspective, a crown of the era (5 shillings, 0.25 pound) was about 28 grams, .925 fine silver. 24,000 of them would give you something like 632kg of silver, worth about $340,000.

                                                It's interesting to note that the gap between silver and gold was typically 15 or 16 to 1, but today is several times that.

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                                                  [–]Midnight_Rising 10 ポイント11 ポイント  (0子コメント)

                                                  This is not beautiful data. This is fucking ugly data. It's literally dots across a normal graph with a completely unlabeled line. Why does this belong on the subreddit?

                                                  [–]chaiteataichi_ 3 ポイント4 ポイント  (1子コメント)

                                                  do we have the data for the rate of inflation at any given point? The fed usually tries to keep it at 2% to maintain a healthy economy.

                                                  [–]btribble 9 ポイント10 ポイント  (29子コメント)

                                                  Since reasonable inflation drives investment and because is the only way we're going to effectively reduce the US national debt, this is not a bad thing. What you don't want to see is any additional spikes piercing that nice upward slope.

                                                  [–]Space__Farts 3 ポイント4 ポイント  (7子コメント)

                                                  Well it's not a bad thing for who? It certainly doesn't help a saver. And only helps (or at least doesn't hurt) the worker if wages raise with inflation which is historically not happening.

                                                  [–]zamzam73 8 ポイント9 ポイント  (0子コメント)

                                                  Interest rates take inflation into account.

                                                  [–]Anathos117 2 ポイント3 ポイント  (0子コメント)

                                                  if wages raise with inflation which is historically not happening.

                                                  Real median wages have increased 30% in the last 40 years.

                                                  [–]jamesinger 0 ポイント1 ポイント  (2子コメント)

                                                  1. We do not want to "help savers." The biggest savers are large corporations and the super wealthy, and they already sit on a stunning amount of cash in spite of inflation. If they could suddenly get paid for doing so it would almost certainly trigger a recession, which would incitivize more saving, which would deepen the recession, and so on into a depression.

                                                  2. Deflation wouldn't help most workers because they hold substantial personal debt which would grow in real terms at the same rate as their wages.

                                                  3. The problem with wage growth isn't an issue of monetary policy. It's a matter of political power. If we want higher wages we'll have to fight for them. That means unions and taking Congress back from big business.

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                                                    [–]Anathos117 4 ポイント5 ポイント  (10子コメント)

                                                    the only way we're going to effectively reduce the US national debt

                                                    Not that we really need to. As long as the debt isn't growing any faster than tax receipts we can deficit spend forever.

                                                    [–]btribble 4 ポイント5 ポイント  (7子コメント)

                                                    That's an "if" that I lack faith in.

                                                    [–]Jericho85 2 ポイント3 ポイント  (6子コメント)

                                                    Ironically, even that statement isn't true. The government could tank the value of the dollar and simply repay it's debts. However, the impact of that on the global economy makes the odds of that vanishingly small.

                                                    [–]Anathos117 2 ポイント3 ポイント  (5子コメント)

                                                    Ironically, even that statement isn't true. The government could tank the value of the dollar and simply repay it's debts.

                                                    It's true, it's just not the only way to handle the national debt. You're right that the debt could just be wiped away by printing a bunch of money, but that would be stupid.

                                                    [–]Jericho85 0 ポイント1 ポイント  (4子コメント)

                                                    That's exactly what I was alluding to, but I misspoke because I missed the word "effectively" in your original post.

                                                    We could do it in a way that is not effective, overall.

                                                    [–]Anathos117 0 ポイント1 ポイント  (3子コメント)

                                                    I'm confused. My point was we don't need to pay off the national debt.

                                                    [–]Jericho85 0 ポイント1 ポイント  (0子コメント)

                                                    Right. I was answering you're quoted text from the poster before you, not refuting that we need to pay it off. Ambiguity strikes again.

                                                    [–]coffee_achiever 0 ポイント1 ポイント  (1子コメント)

                                                    Why do we even need debt? Why not just print money as we need it? Why give people money for loaning us something we can create for free?

                                                    [–]Anathos117 0 ポイント1 ポイント  (0子コメント)

                                                    Because that causes too much inflation.

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                                                        [–]liqamadik 6 ポイント7 ポイント  (3子コメント)

                                                        This graph from first glance tells me that there was random and inconsistent inflation during the gold standard. And consistent inflation after the gold standard. It's no reason to get defensive about leaving the gold standard.

                                                        The overwhelming consensus on inflation is that the best inflation is positive and steady. Steady inflation helps businesses plan and predict accordingly. Positive inflation helps mitigate the damage of recessions. As long as inflation remains steady interest rates will always adjust accordingly and the damage is trivial. It's changes in the inflation rate that's damaging.

                                                        [–]Maxcrss 6 ポイント7 ポイント  (2子コメント)

                                                        They weren't random or inconsistent. All of those inflation spikes were due to wars. The war of 1812, the civil war in the 1860's, the First World War and the Great Depression in the 1910's and 1930's, and then the 2nd world war in 1941.

                                                        [–]liqamadik 1 ポイント2 ポイント  (1子コメント)

                                                        Regardless of what caused it a change in inflation rate is problematic.

                                                        [–]Earthbjorn 3 ポイント4 ポイント  (0子コメント)

                                                        Wars are problematic = understatement

                                                        [–]Dropadillo 10 ポイント11 ポイント  (25子コメント)

                                                        According to Milton Friedman and Rose Friedman in their book "Free to Choose" inflation can be traced to one simple culprit, the printing of new money to pay for expenses rather than a rise in taxation.

                                                        At its most basic level, according to them, government representatives in western institutions learned that they could avoid raising taxes on the public in an overt manner by doing it in a subvert manner, printing more money. Ultimately, inflation is simply a tax on the people in the given country more money is printed. The money the citizens earn or posses is worth less than it was before while the government can use the newly printed money in their possession for public spending.

                                                        In this manner, again according to them, after the 50s governments learned to tax without representation because Congress didn't have to actually raise taxes to accomplish the same goal, putting money in government coffers while taking it from the masses.

                                                        The final chapter of that work, "Free to Choose", is dedicated to the issue of inflation and their arguments are both simple to understand and compelling. I have no doubt there may be other factors at play, but their explanation seems to me to be the most astute though obviously I am not Milton or Rose Friedman and this is Reddit so my explanation is short and simplified.

                                                        Edit: I guess I got down voted for mentioning Friedman? I mean...cmon.

                                                        [–]Vectoor 4 ポイント5 ポイント  (22子コメント)

                                                        Cash is only a very small part of all assets in an economy. The point of central banks keeping a small but positive inflation rate is not to institute a "hidden tax" but mainly to give monetary policy more room to maneuver in the case of a recession. If the economy has 2% inflation then cutting interest rates to zero means an effective interest rate of -2%.

                                                        It's not like new money goes right into the government treasury, it's lent as reserves to banks. Also, the "base" money created directly by the central bank is only a very small part of the total amount of new money which is mainly created when anyone makes a loan.

                                                        [–]Dropadillo 2 ポイント3 ポイント  (19子コメント)

                                                        There are a few ways to do it, I was simplifying by saying "print money." They could just as easily issue promissory notes to financial institutions for reserve deposits backed by treasury issued moneys.

                                                        The point is that the creation of capital creates inflation. The reason it exploded in the 50s is more than likely due to fiscal irresponsibility from unaccountable congressional representatives.

                                                        Your position on interest makes no sense. If the inflation rate reduced the interest rates would increase making up for the difference. Old loans with low interest rates would be problematic in the short term, but banks would charge higher rates to new customers to adjust. It would not effectively mean -2% long term.

                                                        Edit: left out word

                                                        [–]TheMania 1 ポイント2 ポイント  (2子コメント)

                                                        If you look at the log graph the currency is now predictable. Pre 1970 it was wild and unpredictable. Uncertainty costs businesses money, it's far better now.

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                                                            [–]MiltonFriedom 1 ポイント2 ポイント  (1子コメント)

                                                            In the long run, to be specific. Their finding is that the chief determinant of inflation in the long run is the growth in the money supply. Friedman's point on long run inflation is not controversial.

                                                            In the short run, inflation is determined by a variety of things: aggregate demand, shocks on the supply side (e.g. oil prices spiking), and expectations of inflation.

                                                            In the short run, money is non-neutral: raising the money supply will, in the short run, raise real income.

                                                            [–]sirknala 1 ポイント2 ポイント  (0子コメント)

                                                            Charts with data like these need to be in LOG form and uploaded to Quandl.

                                                            [–]Nathan346 1 ポイント2 ポイント  (0子コメント)

                                                            Wow. I'd expect to see inflation to exponentially increase, but it looks like when silver was removed from coins and we went to a full on fiat currency that it just really took off. This is why saving large amounts of money is really stupid.

                                                            [–]bcsoccerwin12 1 ポイント2 ポイント  (0子コメント)

                                                            The comments in this post hurt my brain. Log scales change the scaling of the axis, not the overall trend. If you want to look at year-to-year inflation, you graph year-to-year inflation. Here, the OP graphs what 1 dollar in 1774 is equivalent to by year. As in total inflation. Log scales help in viewing exponential growth because they help you see the beginning part, where growth is slow and mechanisms can be important. Both graphs are fine, depending on what you want to look at.

                                                            [–]EmperorLeroy 1 ポイント2 ポイント  (9子コメント)

                                                            The thing that concerns me about the inflation of the US dollar is less about the value of the dollar, and more about the value of the dollar versus average wage.

                                                            As a very basic example, if yearly cost of living was $1,000 in 1900 (I have no idea how accurate that is) and people made, on average, $1,200 annually; versus the yearly cost of living now being $25,000 (still not sure on accuracy) but we make, on average $29,000 annually. We would be only slightly worse off, percentage-wise, than they were in 1900. Those are the numbers that would be very interesting to see.

                                                            I still appreciate the work you put into this, but it really just made me ask more questions.

                                                            [–]Anathos117 5 ポイント6 ポイント  (6子コメント)

                                                            You're asking for the real (inflation adjusted, as opposed to "nominal") wages over time. Ask and ye shall receive. Sadly, it only goes back to '74, but 40+ years isn't too bad.

                                                            [–]EmperorLeroy 1 ポイント2 ポイント  (2子コメント)

                                                            Thank you. I'm going to be greedy and ask one other thing, though it may be more conjecture than anything else. Does this "real median wage" also account for an increase in cost of living? I'd assume it would, but we have additional costs (internet, cell phone) that may not be accounted for. I'd agree we're in a better state economically than the 70s, but I'm curious as to how much better. The graph shows median wage accounting for inflation, correct? If that's the case, the median cost of living is the last piece of my personal puzzle.

                                                            [–]Anathos117 1 ポイント2 ポイント  (1子コメント)

                                                            Does this "real median wage" also account for an increase in cost of living?

                                                            Theoretically, yes. Inflation is supposed to be an increase in the cost of goods, not some arbitrary "money is worth this much less now" figure. There may be new costs that aren't factored in because they weren't in the original metaphorical "basket of goods", but it's not really fair to treat that as a loss; you're spending more in real terms, but you're also getting more. Complaining about having to pay for internet and a cell phone now is like eating at a restaurant every night and complaining about how much food costs now that you aren't cooking it yourself.

                                                            [–]shieldvexor 1 ポイント2 ポイント  (0子コメント)

                                                            Fuck that. You can't hold a decent job now without a cell phone and internet access and those are expensive as hell.

                                                            [–]Checkmeme 0 ポイント1 ポイント  (2子コメント)

                                                            So wages have gone up since the 1980s?

                                                            [–]Anathos117 2 ポイント3 ポイント  (0子コメント)

                                                            Not just gone up, but gone up in real terms. You can buy more now on the median wage than you could in the '80s.

                                                            [–]TheoryOfSomething 1 ポイント2 ポイント  (0子コメント)

                                                            And not only have wages gone up, but total compensation has increased even MORE. Wages are one part of compensation, but employer healthcare expenditures is another big part these days, and it has skyrocketed since the 1980s. If you wonder why wages haven't gone up even more, the biggest culprit is that employers are spending more and more on healthcare rather than giving people raises.

                                                            [–]MechanicalEngineEar 2 ポイント3 ポイント  (1子コメント)

                                                            another thing to keep in mind is the quality of life of someone living in poverty now vs someone living in poverty in 1900 is far different. I have a sister-in-law who qualifies for medicaid and just last week she walked into an emergency clinic with her daughter who she hadn't bothered to take to a primary care physician until she got really sick, and she got treatment instantly and it didn't cost her a penny. also on her qualifying for medicare budget she and her husband have a rented house, 2 cars, the two of them and the oldest daughter all have smartphones with data plans, they have cable and high speed internet at the house and while they complain about being broke all the time, that doesn't stop them from ordering carryout from restaurants for most of their meals.

                                                            I doubt 1900 poverty was so cushy.

                                                            [–]Anathos117 4 ポイント5 ポイント  (0子コメント)

                                                            This is why people tend to think that the Great Recession of '08 wasn't as bad as the Great Depression. The actual percent GDP lost was about the same, but it didn't feel as bad because a whole bunch of automatic stabilizers kicked in to mitigate some of the damage and the social safety net caught all the people who got laid off. It obviously wasn't any fun to be without work living off of unemployment for years, but it sure beat starving in a gutter.

                                                            [–]tacoblu 0 ポイント1 ポイント  (0子コメント)

                                                            Especially when you factor in the future, I would recommend the FRED--they have a lot of money, less so indeed.

                                                            [–]Tatchmahal 0 ポイント1 ポイント  (0子コメント)

                                                            The sudden massive increase in wealth is how the ratios change over time.

                                                            [–]shartymcfly1 0 ポイント1 ポイント  (0子コメント)

                                                            FYI: you can see about when the FLSA was enacted and minimum wage began rising in 1947+ to counter inflation and other changes.

                                                            [–]pasa_que 0 ポイント1 ポイント  (0子コメント)

                                                            So even if the price of gold, but because the graph is not much by then.

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