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Poverty, Porsches, and the Pandemic

Paper Session

Tuesday, Jan. 5, 2021 10:00 AM - 12:00 PM (EST)

Hosted By: Society of Government Economists

Chair: Susan Fleck, U.S. Bureau of Labor Statistics

Cost of Living Indexes During A Pandemic

Rachel H. Soloveichik

U.S. Bureau of Economic Analysis

Abstract

Major product categories like in-person restaurant meals, live entertainment, and nonessential personal services are unavailable during a stay-in-place policy. As a result, their inflation rates cannot be measured directly. This paper uses previous research on the value of tourist amenities (Florida 2018a) and a newly developed model of tourist behavior to calculate a theoretical price for unavailable products. In this paper, the word “theoretical” designates an imputed price which is consistent with price measurement theory (Diewert and Fox 2020) (Diewert et al. 2019) (Diewert 2003). It does not imply any data problems or computational mistakes with either the consumer price index (CPI) published by the Bureau of Labor Statistics (BLS 2018) or with any other cost-of-living indexes.
This analysis estimates monthly product unavailability in every region of the United States. Based on those regional estimates, the paper calculates that the average U.S. consumer experienced theoretical inflation at least 1.4 percentage points higher than the published CPI in the first quarter of 2020, at least 6.0 percentage points higher than the published CPI in the second quarter, and at least 2.8 percentage points lower than the published CPI in the third quarter. The faster inflation rates in the first two quarters of 2020 reinforces the measured declines in real consumption during those quarters and the slower inflation rate in the third quarter of 2020 reinforces the measured recovery in real consumption during the third quarter. In other words, at least one third of the theoretical decline and recovery in real consumption is not reflected in published economic statistics.

An Alternative View to Examining Consumer Tendency to Shop Around

Marie Rogers

U.S. Bureau of Labor Statistics

Brad Akin

U.S. Bureau of Labor Statistics

Abstract

In this article we measure price elasticity of demand for 60 consumer goods and services for the U.S. by utilizing expenditures. Price elasticity of demand shows the responsiveness of and the change in demand for a good or service in relation to a change in price. Using expenditures produces a comparison to most studies that typically use the traditional price elasticity of demand formula with quantity demanded and price data. We examine here household spending habits for a 30-year period from 1986 to 2017. We believe that when focusing on categories that include a broad range of good specifications (i.e. of various brands and sizes, etc.), using expenditures or revenue to derive elasticity provides an alternative method to examining consumer tendency to shop around, because while consumers may demand the same quantity of a good or service, they might not spend the same amount due to substitution. Using expenditures to estimate own price elasticity of demand can help reveal the consumer tendency of shopping around for better prices. It can yield further insight into consumer loyalty to certain brands, and whether there is the ability on the part of the consumer to shop around for a substitute good or service.

The Geography of Opportunity Over Time

Catherine G. Massey

Welch Consulting

Jonathan L. Rothbaum

U.S. Census Bureau

Abstract

Recent research finds that childhood neighborhoods affect adult economic outcomes, especially for children of low-income parents. Because places are shaped by both contemporary and historical factors, it is important to understand regional differences in opportunity both today and in the past. Using 1940 Census data linked to 1040 tax returns, we examine geographic differences in child outcomes experienced by cohorts born roughly 50 years apart – revealing how intergenerational persistence of status has changed over time both at the national level and at smaller geographic levels. In studying these changes, we hope to shed light on the causes of intergenerational persistence in status and inequality of opportunity.

Luxury at a Cost: Car Purchases by the Credit-Constrained

Wenhua Di

Federal Reserve Bank of Dallas

Yichen Su

Federal Reserve Bank of Dallas

View Abstract

Abstract

Economics theory predicts that consumers spend more on luxury goods when income increases. However, some individuals buy goods of visibility beyond their ability to pay. This behavior can be driven by motives to fit in a social setting or to differentiate oneself from others in the same socio-economic group. These pursuits of status can come at a cost. We explore a unique dataset on automobile purchases and financing in the US, and document the credit profile, loan borrowed and payment burdens of buyers of a variety of makes and models across zip codes. We examine whether consumers of higher repayment risk measured by credit scores engage in conspicuous spending and exuberant borrowing to buy particular models of luxury cars. We also compare the interest rates, terms, and monthly payment levels with buyers with lower credit constraint and see if the patterns differ by demographic characteristics and income distributions of the communities. We verify these findings using alternative consumer credit and mobility data. Over-borrowing for buying automobiles and other conspicuous goods can jeopardize one’s ability to save for emergencies, buy other necessities, or invest for the future.

Discussant(s)

Marshall Reinsdorf

International Monetary Fund

Gayle Reznik

Social Security Administration

Gillian Burnet

Wesleyan University

David Low

Consumer Financial Protection Bureau

JEL Classifications

D0 - General
E0 - General