Benson's Economic & Market Trends
June 26, 2010
"Americans Are Getting A Lot Less But It's Costing Them More"
Inflation is defined as the rate at which the general level of prices for goods and services is rising, and, subsequently, the purchasing power is falling. I've always thought of inflation in terms of what we get and what we pay, but quality and service are as important as quantity, for the price.
I felt inspired to write this article when I went shopping for razor blades recently and had a painfully difficult time finding the razor blades I needed. Much to my dismay, I discovered that most of the stores want to sell five-blade razors at a much higher price than the Trac II razor blades I've grown accustomed to. So I rebelled by buying and hording away every last Trac II blade I could find and now have enough blades to last for years. But it's not only razor blades that are disappearing or increasing in price. It's noticeable every time I make a purchase at the supermarket, restaurant or department store. Following are some examples of what I am talking about:
Cereal boxes are only half full; yogurt has shrunk to six ounces from eight; tuna cans are now five ounces from six; candy bars are half their size, and newspapers are shrinking and may totally disappear. (Reporters are expensive, so picking up and printing government and corporate news releases is now considered serious reporting.) A meal at a local restaurant tasted like yesterday's leftovers and the portion size dwindled, but the price was higher.
Also, if you can afford to go on vacation, you'll become an unpaid travel agent working for the airlines, car-rental companies, and hotel. That's right. I recently had to spend my valuable time on the internet doing the research then booking and paying for a trip. Then, to top it off, I had to use my computer, printer, and paper at my own expense. When I got to the airport, I was strip-searched and forced to pay extra for an exit row, to check a bag, get a pillow, blanket, and a meal. Then, I had to waste an hour of my life in a long line while being forced to take off my shoes in honor of the shoe bomber and pay my respects to the TSA, who added a fee to my airline ticket. When I picked up the rental car, airport fees and taxes pushed the cost up by a third for an older car that wasn't well-maintained. (The major rental companies are hanging on to their cars until they are close to breaking down.) When I finally arrived at the hotel, I was hit with a resort fee, internet fee, and daily telephone charge each time I looked at the receiver. I was careful, too, when approaching the mini-bar in the room because the motion detectors inside would bill me for food and beverage items that were examined and put back but not consumed (a bottle of coke was $5). The taxes were horrendous and I wonder if the maid service and extra towels or pillows were bundled in the final bill.
Every time I turn around, it seems like we're getting less but paying more. Believe me, none of this "less for more" is appearing in the Consumer Price Index. I even heard the other day that postage was going up another two cents for a First Class letter, and Saturday delivery may be eliminated altogether. If you're dealing with the government, there is no such thing as First Class. State and local governments have closed parks, cut back on trash collection, road repairs, library hours, and laid off teachers. Meanwhile, taxes are going up and property values are going down. In New York City, they announced a major cut in bus and subway service along with a fair increase. When it comes to public services, the collapse in services " especially in cities - will be monumental and nowhere is it reflected as a major price increase for services actually rendered.
When examining my recent cable bill, I thought back to the old days when TV was free before you had to pump your own gas and wash your own windshield. The electric bill was up again, too. (In Florida, we get a special assessment to help pay for new solar plants and the summer has had record heat.) Lastly, my health insurance will go up the usual 20% next year yet I'm told by our elected officials to have a nice summer on our beautiful beaches that are threatened by the oil spill.
On sober reflection, there is no question that the government's price statistics are not for honest measurement but for propaganda purposes. The government actually believes that if they tell us the cost of living is not going up, we'll believe them and won't notice we are actually paying a lot more for a lot less these days.
The commonly reported inflation numbers in America make great use of hedonic adjustments which adjust price for quality. The best example of this is in computers. The speed of the computer chip gets faster and the hard drive holds more data, so the price must have gone down according to hedonic adjustments. Unfortunately, for me, since I use the computer to write and to access the internet, the speed and value was limited years ago by my typing speed, so a bigger, faster computer has little benefit.
Worse yet, most of the hedonic adjustments are for gadgets that are designed to break or are very expensive to fix, and must be thrown away. Cars used to have engines a guy could tear apart and tune. Now, they have computer chips that cost over $1,000. Most electrical high-tech gadgets are throwaway items: Drop them, spill some coffee on them, suffer a power surge, and they're toast. You will then have to buy them all over again to survive in this world of gadgets, but you won't see that in the price index!
For the things you buy every day " where hedonic adjustments can't be used to defraud you " take a look at what has happened to prices when stamps were $.03 cents, a gallon of gas $0.18 cents, and a loaf of bread $0.14 cents. See below:
This 1950 menu from F.W. Woolworth is an excellent example of how much cheaper it was to eat out in the 1950s. Just wait and see what it will cost to live when you finally get around to retiring!