It’s BAAAAAAK! – Thoughts on A Forgotten Scourge
Have you ever been brought back into close, personal contact with someone or something you thought you were done with? Sometimes it doesn’t matter whether you are over that one or that thing or not – sometimes you have to face the unpleasant fact that he/she/it is back in your life. Well I have been having to do just that. What brought about this unhappy occasion? Inflation.
Being the thoughtful homeowner that I am, I decided that the neighbors might appreciate it if I spent a little effort improving my lawn. So I bought a product that is supposed to kill crabgrass before it gets started, while simultaneously fertilizing everything else. Is there such a thing as birth control for crabgrass? I guess so.
As I walked to and fro across my soon-to-be green acreage all was fine until I noticed the dwindling level of the little pellets the color of cheap, boxed macaroni and cheese (and surely even less tasty) in my spreader. Then I went back and read the fine print on the bag. And there it was.
For many years I could buy bags of lawn stuff in two sizes – the small bag was good for treating 5000 sqare feet and the big bag was good for 15, 000 – which was a happy coincidence because the 15 ,000 square foot bag was almost exactly the size necessary for my lawn. But here was the unhappy news – the big bag I purchased at Costco contained enough lawn sustenance to treat up to – – -14,000 feet. Yes, my $50 bag of fertilizer messed me out of 1,000 square feet of green and crabgrass-free lawn. Well not actually, because I had to go to the neighborhood hardware store to buy a small bag to finish the job.
For those much younger than me this is a new phenomenon. But for someone who grew up in the 1960s and 70s it is a distasteful case of deja vu. Inflation is back.
I could cite example after example of what it was like in the old days. For a long time telephone calls in a pay phone (who is old enough to remember those?) were a dime. Then they went to fifteen cents. By the time I was in college they were a quarter. The same call kept costing more.
But the really pernicious examples were where those selling things could quietly make the portion you were buying a little smaller so that maybe you wouldn’t notice the price going up so much. Candy bars shrunk notoriously in the 1970s. As did other consumer products like boxes of laundry detergent or breakfast cereal. Many of us have never experienced this because after inflation finally got whipped (and not by Gerald Ford with his WIN buttons in 1974) we enjoyed the benefits of stable money for a long time. And those products that had shrunk started growing again.
About three years ago I got into some depth about what inflation is (and what it isn’t). It may be time to go back for a refresher. The Executive Summary is that inflation is always and everywhere caused by money losing its value. Everything else (like rising prices or shrinking portions) is a symptom. Ignore anyone who says different because they just don’t understand because they were surely within the 98% of every economics class that grumbled about how impossible it was to decipher those stupid graphs.
The difference between now and three years ago is that today we get to see in real time all the stuff I wrote about then. We are experiencing an odd mixture of real price increases and inflation increases. A “real” increase is like, say, gasoline on the east coast after a recent computer hack took a major pipeline offline. There is less gasoline than people want. Remember, jumps in price caused by things like supply issues are not inflation – they are a market response to a local shortage. And there are lots of other things where this is happening – remember, we are coming out of a pandemic that severely affected production capacity in many areas. Surpluses force prices down and shortages force them up – it’s the way things are supposed to work.
But more than that is happening now. Everything in general seems to be going up now, which is a sure sign that the value of our money is going down. If this is true, I have bad news for everyone. Inflation is kind of like a Friday night college drinking party. For the first couple of hours, everyone is having a great time. Everyone gets more attractive and more intelligent and has more fun. Only later do things start to get ugly when there is a price to pay for all of that overindulgence.
Inflation is the same way. It’s all fun and games when we all think we are getting big raises and where our house value and 401Ks keep going up. But give it time – soon those regular price increases for everything will become like a junkie’s fix, where we all expect it and cannot imagine life without it. And like a junkie’s fix, the increases that benefit you will never be enough. If you are one of those people who worked hard and saved your money – sorry, but you are going to come off poorly with sustained inflation. It’s the ones who ran up their credit cards and maxed out their home equity lines to take trips to the Europe and frequent the expensive restaurants the more prudent among us couldn’t afford and who owe tons of money to everyone who will make out – because they borrowed expensive dollars and get to pay back those debts with cheap ones.
There are always a few concrete causes, but it comes down (as it must) to government being government. Because it is government, and only government, that is ultimately in control over the number of U.S. Dollars in circulation. This is especially true when it is a government largely populated by people who only started paying attention to financial stuff after maybe 1985, and did not have the firsthand experience of living through the unpleasantness necessary to tame inflation the last time it got bad. Or maybe they are old enough to know better but who didn’t understand this stuff when it happened last time. Whatever the case, we are going to have to rely on them to fix it. Is anyone else feeling a little uneasy about this?
I wonder how many square feet the big bag of fertilizer will cover next year?
J. P.'s Blog 
We likely all have relatives who we don’t see that often yet when we do they quickly wear out any welcome and takes forever to leave. An added benefit is they even tend to linger in many ways long after they have left.
Inflation is just like that relative. And, I agree, it is here for an extended visit. That bag of fertilizer will be down to 12,000 square feet before our visitor leaves.
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And it will probably cost more too.
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Yup it’s definitely coming. My wife was annoyed last year that her favorite soup in boxes got reduced in size but not in price. On the other hand I can buy motor oil in 5 liter jugs, which had been standardized on 4 liters for many years. However I can’t comment on the price difference for the extra liter, it may be more than 1/4 more expensive.
According to the bank of Canada our inflation in the last year was 3%. I’m kind of interested to see what it’ll be for this year, because real estate prices in urban centers have doubled during the pandemic. I now live in a million dollar house, which would be impressive except that every other place to live has gone up in market value similarly. We never had a real estate crash in 2009, is it coming now?
I don’t begrudge the government being government, so don’t feel uneasy. We have always run our household finances conservatively so our position is pretty secure, and I can’t think of anyone I’d rather have in charge of macroeconomic policy. I do remember the inflation of the 70’s though, and have never assumed it was vanquished for good. Frankly I’m surprised that it has taken this long to return.
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It will be interesting to see how our comparative dollars hold up given the two independent monetary systems involved.
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Interesting JP. I remember the inflation of the early 80’s quite well. While we all got 15% annual pay raises for awhile, many people lost their houses as 18% mortgage rates were the norm. I took economics 101 in first year pharmacy as an elective, even though I was warned not to as it was a killer course, and I found it interesting but hard, and ended up with a C when I thought I had done much better on the final exam. Our particular problem here in Canada is that we have a drama teacher (with charisma?) as a Prime Minister who has zero understanding of economics. Harper our previous PM had a degree in economics and political science and was able to steer the country better out of the 2009 recession. I do wonder where it will all end…..and we’ll be like those European countries where a box of cereal costs $40.
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Yes, the interest rates were killers.
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Inflation (currency devaluation) exists because the gov’t is OK with it. It’s like a hidden tax. Our present $$$s are technically unconstitutional–$1 is supposed to = 1 oz. of silver; 1 “double eagle” $20 coin = 1 oz. of gold. Once that is done away with, inflation follows. The $ has lost 99% of its purchasing power since 1920.
Inflation now is less than it could be because we can buy cheap things at Walmart which are made in China (cheap labor). However, if you want something done which requires domestic skilled labor (home improvements and auto repair), boy, do you pay! Also, because of gains in technology and efficiency, costs are lower in an absolute sense.
Inflation has been good to me–I bought gold-based investments in the early 2000s and sold some in 2010–gold went from $400 to $1000/oz.–which enabled me to buy the house I’m living in. This would not have been possible otherwise. We’re at $1800/oz. now and I think gold will continue to go up.
Government has a responsibility to protect the value of the currency. $1 trillion was spent in Afghanistan & Iraq. What did we get out of that? Now they’re talking $4 trillion for lots of stuff which I don’t think is very good. The Fed always adjusted interest rates to control inflation. Now the new thing is MMT (modern monetary theory)–keep interest rates low; the U.S. gov’t can just borrow more at low rates, and just keep spending. So they’ll print their way out of bankruptcy. We’ll see how that works out!
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Congratulations on your good investment results!
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I always wished I’d hung onto the packaging of a popular product for several decades, to see how the size/shape decreased while the price increased. Even the advertising on these items (ex. today’s “Family” or “Jumbo” bag of chips = yesterday’s “normal”. Fascinating how these changes in manufacturing are apparently more cost-effective than simply raising the price on the original item a few cents.
Also, it’s frustrating to buy ingredients for your grandmother’s casserole, only to discover the ounces on the can don’t match the “can” a 1970s recipe asks for. So you have to use 10% of a second can and probably throw out the rest. Inflation is a sneaky sniper. Runs here and hides there. You may grab his coattails every now and then, but you’ll never truly catch him before he manages to hurt you.
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All good points. I guess we would cut down on landfills if we could all keep libraries of the consumer packaging we buy. š
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It’s so sneaky what goes on with carton sizes shrinking or my favorite “contents may settle” – right … you open up a package and it is half full. It must’ve settled a lot, that’s all I can say. The fertilizer conundrum is interesting. My property is small so 5,000 is fine for front and back, but the cost of the Scott’s Four-Step Program which you could get all four bags for a decent price has skyrocketed. I diligently weed and feed, but wonder why I feed, so more mowing must be done. It’s a Catch-22.
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Ah yes, “contents may settle”. But they never show the original fill mark so we can know how much is settling and how much is the amount they put in to begin with.
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Yes, it is all trickery and scamming, isn’t it? And we, the consumer who uses the product, are seemingly content to go along with it.
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Like those delicious bags of chips that are 55% air. š
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When I’m mentoring kids In photography, I always tell them to look at the cost of something as a percentage of their gross salary. You’d be surprised how “unaffordable” the world has become! My first lesson is that my first new car, a 1977 Toyota Corolla (their cheapest), lock, stock, and barrel (taxes and all), was literally 3K dollars. My gross salary (not much) at the time was 18K; that means the car was about 1/6th of my salary. The last crew I managed, the cheapest car from Toyota, was 65% of their gross salary. Stunning! Ditto for rent and everything else. I read something recently where someone was saying that film was actually cheaper than 30 years ago, when you do the inflation calculation. I corrected them by telling them to extrapolate their salary backwards to that time and see what the actual percentage of their salary a roll of film was. Yeah, way cheaper than today, way less of their salary went to buy it! I was buying rolls of Kodak 35mm on a paperboys salary in 1970! No problem. I had a pal that died well into his 90’s, and he said the worst thing that ever happened to retirees, was the end of the 5 1/4 % pass book savings. You money was insured and ‘safe’, and earning a fair amount, without the risk of the market. My last pass book interest rate was less than 1%!
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The problem with picking a particular item is that they are not always equivalent over time. That new Toyota pollutes less, is exponentially safer in a crash and will not have a body that looks like Swiss cheese in 6 years in a salty climate. Plus people used to consider a car ready for the scrap heap at 100k miles where that mileage is just the beginning of middle age now. It’s more expensive but it’s much more car. Also, has the car gone up or has the pay rate lagged instead? That’s the trouble with devaluing currency- there is no label that says what it’s worth today. We have to try to separate prices that separately ebb and flow on literally everything from a devaluing dollar that hides in the shadows of everyday commerce.
Imagine if the weights & measures people allowed a gallon to get bigger and smaller – without a container to actually measure it, you couldn’t really know how much your gas costs per gallon or what mpg your car gets.
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That’s why I picked Toyota, I drove that thing for 180,000 miles even back then, but yes, it was more rust prone and more polluting! You can’t say the same for apartments tho. I live in a neighborhood that I had my first apartment lived in 45 years ago; and the apartments today would be a larger percentage of income for similar jobs than back then (and they’re the same apartments, not upgraded). Conventional wisdom back then was that you shouldn’t spend more than 25% of “net” income on an apartment plus all utilities, then it went to 25% of gross, then more, until now, the kids well into their first jobs are paying close to 50% of gross. My girlfriend in the summer of ’72, was making 15 dollars an hour in a factory (30k), when my parents bought their nice house for 27.5K, now where she worked isn’t paying more than 18 and hour, and you’d be lucky to buy a house in my parents neighborhood for less than 250K. Regardless of how things changed, or the quality of the goods, it’s really still about the selection and buying power you have vs. the salary you make. Cheapest Toyota, know matter how it compares today with back then, vs. the salary you make at the same level of employment and what you can do with it! I for one never asked for power locks, power windows, heated seats, etc., but now you don’t have a choice, you’re forced to take them. After reading your entry the other day, I went back and ran the numbers on my 18K salary in 1977 to the year I was forced/decided to retire, and in todays money, it turned out to be 25K MORE than I’ve ever made in my life, including when I was a director managing 21 people! (no wonder as a single person, I could never afford a house) No matter what the cost of anything, or it’s relative value, it’s pretty easy to see that if you’re paying 50% of your gross income on a cheap apartment, you’re doing a lot worse than when people were paying 25% of their net!
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I think your main point is a good one, and that is that incomes for lower tier jobs (and many middle income jobs too) have not kept up in terms of “real” income. So we get more car for the money than we used to but that’s little consolation when people don’t have as much money. With a stable dollar over the last 50 years these trends in actual prices and incomes would be more apparent.
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JP, just as an aside, I went to an inflation calculator site, and extrapolated my $3,000 car in 1977 to today? It was about $13,500. Minimum Toyota brand new is now the Corolla, since the Yaris is gone…it starts at 21K, which means you might be able to get it with heavy negotiation, for about 19.5K. So you don’t get a better car for slightly more, you get a marginally better car for much more! Where’s my 13 thousand dollar car?
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I just did that calculation for the 29 Ford I once owned that probably sold new for $595. It would be $9200 now. I think the catch is that to get one we would need to give up the NASA-level mainframe computers we carry around in our pockets for what a new car cost in 1929. š
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I’m actually IN on that deal!
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