The average is not the individual and the individual is not the average

From The Russia-Ukraine Holding Pattern from The Morning Dispatch.  But I am focused on the section about inflation, not Russia-Ukraine.  

When discussing analytics I not infrequently point out that the average is not the individual and the individual is not the average.  Averages are just that, a means of aggregating many small items into a larger picture.  As useful as an average might be, we cannot forget the individual elements which are where the real data lies.  Average trends in particular can be deceptive.

This distinction is captured well, I think, in the Dispatch's discussion about inflation.

Just because it was expected doesn’t mean it wasn’t shocking: Year-over-year (YoY) inflation hit 7 percent in December per the Bureau of Labor Statistics’ consumer price index (CPI), the largest annual price increase the country has experienced since June 1982.

It’s been about nine months since inflation started to take off in earnest, but—as Derek Thompson and Morgan Housel helpfully discussed on a recent “Plain English” podcast—the burden of these higher costs has not fallen on all Americans evenly. CPI is calculated by using consumer surveys to determine what Americans are spending their money on, and then amassing a variety of those goods and services—food, housing, transportation, energy, etc.—in one theoretical basket. The Bureau of Labor Statistics then weights each individual line item by importance, and measures the cost of that total basket over time. The topline figure it spits out—7 percent this month—is a helpful benchmark for policymakers, but it says very little about any one person’s financial situation.

Gasoline, for example, is weighted at about 4 percent of the CPI basket, and—although prices fell 0.5 percent from November to December—it cost 49.6 percent more in December 2021 than in December 2020. Hotel room prices have jumped 27.6 percent this year, used cars cost 37.3 percent more, meat is up 14.8 percent, and men’s suits and sport coats are 10.7 percent more expensive. If you’re a traveling salesman who drives town to town and has bacon for breakfast every day, you might look at that 7 percent overall number and think, That’s it? Conversely, you may live in a city and rent an apartment (+3.3 percent YoY), take public transportation (+2.4 percent YoY), subsist primarily on fresh vegetables (+2.4 percent YoY) and pasta (+2.8 percent YoY), and be wondering why everyone is freaking out.

But far more Americans are feeling the squeeze than aren’t, as evidenced by the fact that 84 percent of respondents in a recent Fox Business poll reported feeling “extremely” or “very” concerned about inflation. A plurality of them labeled it the “biggest issue facing the economy.”

For those for whom necessary expenditures are about equal to income, then small movements in inflation are consequential.  I don't know where the cut-off is but almost certainly the bottom three quintiles of income earners are spending as fast as they earn, paycheck-to-paycheck.  Probably more likely the bottom 70%.

For the top quintile of income earners,  for whom income always exceeds expenses, inflation is a nuisance rather than an immediate reduction in quality of life.  

Most of those setting and executing public policy are in the top quintile.  For them, 7% inflation is an inconvenience, a nuisance.  It is intellectually startling to be in inflation territory we haven't seen for near half a century.  But that's it.  It is an abstract thing.  

For everyone else it means a reduction in quality of life and a reduction in consumption.  

Which brings us back to the fundamental issue - the average is not the individual and the individual is not the average. 

It is easy to extend the observation.  Most of the media focus on partisan spats as the two establishment parties gain and lose power against one another.  And yes, that is one important dynamic.

But the other, and I think the more important, are the disparate fortunes between all those who might be considered the establishment (in terms of power and money) and all other Americans.  The establishment class, the top quintile in power and money, are always more insulated from the consequences of exogenous shocks and from their own actions (whether personal actions or policy choices affecting others.)  70-80% of Americans experience direct and negatively consequential affects from school closures, from increases in inflation, from consequences of vaccine mandates, from disruptions in income, from inaccessibility of healthcare, from supply chain shortages, etc.  

When establishment America does stupid things at a policy level, they might, as individuals, experience inconveniences.  Everyone else actually experiences a decline in quality of life.  And establishment America, not experiencing it themselves, fails to feel the angst and anger of everyone else.  

And that's a problem.