Tuesday, April 29, 2008

In honor of Benny B

Tomorrow Benny "inflation, what inflation" Bernanke will lower interest rates again. Since there is no inflation according to the bogus Fed numbers, it's all good. If you've seen some recent outrageous jumps in prices, post them. And I'm not talking about gas prices which is a given. I'm talking about the things that supposedly are only up 4% year over year according to the Fed.

Here are mine that stand out:

Petsmart dog training classes used to cost $99. I know since I just signed up for a class last month. Same class is now $109. No biggie just a 10% increase.

Keeping with the canine theme...a 40 lb. bag of food I buy was $35. Now that 40lb no longer exists, at least I can't find it. Instead there is a new 30 lb. bag for $28. Great strategy. Lower the price by 20% and reduce the content by 25% and hope nobody notices. At the end of the day the price is up by 6.7%.

Rite Aid sells 2 Ben & Jerry's small containers for $6. Up until about 3 weeks ago, used to be $5. Only a 20% increase, what me worry?


Scott said...

The best one I've seen recently is the decorative rock I ordered. It comes with free delivery if you order over 10 tons... but I was charged a $8 fuel surcharge. That fee didn't exist 4 months ago. Percentage wise isn't much of a difference, but still.

The contrarian thing I've seen recently is Little Caesar's Pizza. I hadn't been there in literally 20 years. A large one topping pizza there is STILL $5... and the place was packed. Wonder why?

All I know if thankfully my gubermint check should be direct deposited here any day now. And I'll use just like Jorge suggested, to help pay my high electric bill and fill up my car. Keep printing money Fed, it's working great.

On a completely unrelated note, did you start this site Ed? : http://angryrenter.com/

Ed said...

Didn't start it, but signed it. They have something like 20K signatures and delivered 15K to congress this week.

My check unfortunately won't be coming till June since my SS number ends in a high digit. Either way, what I'm going to do is sign it and send it right back to the IRS towards my 2008 taxes. So I will be stimulating the economy by 41 cents and doing my civic duty.

Zach said...

Ed, I almost always agree with your comments on the housing market. But I think you get worked up too much in your inflation posts.

I'm sure you realize that inflation numbers are based on a basket of goods that are weighted according to some average household consumption. Even though your Ben & Jerry's went up 20% (which is certainly due to the increase in milk), since ice cream (hopefully) comprises a small portion of the household budget, it has essentially no impact on inflation. We need to look items that comprise a larger budget share.

For every increase in dog food there are countless decreases in price due to technology improvements (i.e. computers and HDTVs). How much less is a computer of given quality today compared with last year? It's natural human bias to observe and dwell on price increases but neglect the decreases.

You also have a distaste for the use of "core" inflation figures. If we're making policy decisions based on price increases, then it helps to know which factors are driving them. If we know that food and energy are increasing at 6% while the prices of thousands of other goods we consume are rising at 1%, then the best strategy is probably different than if all goods were increasing at a 4% rate. There's a great deal of utility in using both numbers concurrently to see what the underlying trends are.

Also, if you were trying to do your "civic duty" (which I realize is sarcasm), why would you send it back to the government? That won't stimulate the economy at all. They're gonna spend exactly the same as they would without your check and you're gonna spend less. You're also giving a free loan to the government, which I'm sure you're well aware.

By the way, the dog food went from $0.875/lb to $0.933/lb - only a 6.7% increase.

Ed said...


I don't mean this morning to be pick on Zach day but...

I know how inflation works. I have a degree in economics and studied this stuff in depth. I know all about the basket of goods.

Let's say a new laptop goes from $2000 to $1500 year over year. Next year that computer is twice as fast. In FedWorld, the actual price of the computer is measured as $750, not $1500. Anbd prestor, $750 of negative inflation just magically appeared. This neat trick is called hedonic measurement and is something relatively new.

If you were to measure inflation using the same methodology today as 30 years ago, inflation would be in double digits. Only reason it is at 4% or whatever the Fed's number is these days is because they gamed the system to keep the number lower by using things like hedonic measurements.

Fact of the matter is we have a $10T debt. We have tens of trillions in unfunded liabilities like SS and Medicare. There are 3 ways to resolve this. Spend less, tax more or inflate. #1 and #2 are politically hard to achieve. You don't need a vote in congress to make inflation happen. #3 is easy and it is the option that the government has decided to pursue.

And yes I messed up the dog food calculation. Thanks for pointing it out, I changed it in the post as well.

Jeremy said...

Also, you can't eat a laptop...but dog food may eventually be on the menu.