Some prices seem to be declining, and others are increasing. So if one looks for inflation or deflation, it doesn’t take much searching to find an example to fit either argument. There are two different things happening here. One group of items that have been produced for retail sale, are also being resold by end consumers to raise cash. When you have consumers reselling into the market against retailers, prices will drop. The second group of items is pretty much just for consumption without a resale option. These prices are rising dramatically; food, beer, cigarettes, gasoline, drugs, and health care.
With prices rising the consumer has a choice, pay the higher price or switch to an off brand or generic. Blue Goose Vodka at $35 a liter doesn’t have quite the bang of a generic 1.75 liter bottle of the store brand at $10. Of course, then there is the nagging sleight of hand trick where the product size gets reduced and the price stays the same. The family size bag of potato chips now fits in a lunch box.
It’s not hard to notice the decreased consumption of optional goodies; cable, cell phones, internet, the second car, eating out at restaurants. This decreased consumption has a peculiar effect on public utilities. If everyone decreases their water consumption, water bills increase (this happened in our area). Why? Every company has fixed costs that don’t decrease when consumption decreases. With government services, the costs will increase or stay the same, even though they lay off police, firemen and teachers. You get less, so you’re really paying more for it.
What we are going to see from here in the coming year, is a concentration of thought, on how to enjoy our lifestyle by spending less. By shopping more carefully we get better prices from everyone. Some of us know how to do it, the rest of us will learn by going hungry now and then. The real question to ask is, are we able to buy more with our paycheck (deflation) or less (inflation)?
If you buy the premise that Bernanke and the Federal Reserve are saving us from deflation, then you’ve bought into the assumption that printing all these dollars is good for the economy. If you buy the premise that raising the national debt level passes these costs on to our kids, you have bought into the assumption that it’s free for now, and you’ll struggle with the morals of this despicable act of passing our debts onto future generations. If you reject both, you realize that we have a debt problem that will never make it to the grandkids. Our government has borrowed every penny in our banks and spent it.
One of my readers (Rob) commented that the candy bars he purchased had gotten smaller. My half gallons of ice cream are now 1.75 quarts and they take up more space in the freezer. The gallon bottles of ammonia for a dollar are now half gallons. If you have gotten on an airliner lately, there is a new seating section called “cattle class.” What is happening to us is almost invisible. It is a little like sawing a quarter inch off of Grandpa’s walking cane every week; sooner or later, he’s going to catch on. Old Ben Bernanke might convince Grandpa that he’s growing taller and sell him a new cane.