Posted 11/15/2010

60 YEARS OF HIDDEN INFLATION

The Federal Government has been hiding the true inflation from us for the last 60 years.

The Consumer Price Index (CPI) was designed to deliberately understate the true inflation rate.  Republican and Democrat administrations alike happily accepted the big inflation lie.

The lie is based on what is measured by the CPI and what is not.

If the price of a movie ticket increases from 50 cents to $10, the CPI registers an inflation of 2,000 percent.  But while this seems high, it is really too low.

Sixty years ago, the 50-cent movie ticket bought much more than a movie.  It bought you a fabulous experience in an opulent theater setting.  You were escorted to your seat by pretty, white-gloved ushers.  Plush carpeting and soundproofed walls and ceilings minimized audience noise.  Taking your girl to a movie was a real treat for her.  You might even get a kiss and a little feel (all above the waist, of course).  Even if the movie was a bummer, you still felt you got most of your money's worth.

But what does a movie ticket buy today?  You're crammed into a rectangular cement tube which must have been designed and decorated by the architect of Sing Sing.  There are no image-building refinements.  No girl in her right mind would consider going to the movies as a date.  (You would get further with her by renting a BMW for the evening.)  If the movie is a bummer, you would have wasted both your money and time.  In New York City, most movie houses do not even have lobbies.  You have to stand outside on the sidewalk waiting to get it.  Try that in the rain or snow some time. 

Many older, affluent folks are trying to recapture the movie theater magic of the 1950s by building luxurious home theaters.  Wide screens, lush carpeting, soft leather seating.... The only problem is that spoiled daughters won't put on white gloves and usher the folks into their seats. 

The truth is clear:  Going to the movies is now a 50-cent experience that costs $10.  The true inflation due to loss of service, atmosphere, architecture and lobby design is closer to 20,000 percent than 2,000 percent.

The office chair which may have cost $40 in 1950 is $160 today.  According to the CPI, that's an inflation of 300 percent.  But today you have to assemble the chair yourself.  If you add in the hours of unpacking, studying diagrams, assembly, searching for missing bolts, and package disposal, you are into three hours or so.  At $20 an hour, your chair would cost $220, which means your new chair has inflated not 300 percent, but 450 percent.

If you add your hourly wage rate to each do-it-yourself project, some things become prohibitively expensive.  Anyone who has worked from 9:00PM to 4:00AM on Christmas Eve assembling a miniature kitchen for his daughter would realize the whole set was completely unaffordable.  Major businesses have been built on the assumption that the time of the consumer can be bought for free.  Maybe if you're not employed, that is true.  But if you're a working Joe, your time is valuable. 

When you shopped at Marshall Field in Chicago in the 1950s, you bought quality merchandise from a sales staff which was highly trained to believe and act as if "the customer is always right."  Now Marshall Field is gone, snapped up into the mediocre maw of Macy's, where "management is always right."  Compared with the Marshall Field sales staff, the Macy's version is poorly trained.  Just as obviously, it is frequently very difficult to find a salesperson when you've found something to buy.  Thus department stores have gone from service emporiums to self-service institutions. 

If in 1950, $100 bought a high-quality cashmere sweater, and a new one costs $700 today, what is the real inflation?  The CPI says 600 percent.  But add the lost shopping experience atmosphere, the quality of sales personnel and the reduced sales force, and the real inflation becomes more than twice that.  (The Publix supermarket chain offers better, friendlier, consumer-oriented service than do most department store chains.)

Big box stores like Home Depot and Lowe's offer lower prices than does the TruValue hardware store.  But if you add in the monetary value of hardware knowledge and service offered by the hardware store's owner and manager, there is no comparison.  You're better off buying products which are accompanied by valuable knowledge and service components. 

You should support your local hardware store before it is forced into extinction like the local appliance store.  In 1955, if something went wrong with your washing machine, the local store would send a repairman out.  Someone who knew how to make repairs.  But by 1980 the chain stores were sending you repairmen who frequently said things like, "Your bearing has worn out.  But the replacement of the $3 bearing will cost almost as much as a new washing machine."  Today the situation is so bad that appliances have become widely viewed as disposable goods. 

Refrigerator icemakers are of very poor quality.  I had to replace mine twice in the first three years of the fridge's life.  Finally I said the hell with it and reverted to ice cube trays, which have never malfunctioned seven years running.  There's a bonus to the old ice cube tray.  It makes far better, colder, more durable ice cubes than does the automatic ice cube maker.  This means I no longer have to interrupt my enjoyment of hosting a cocktail party by constantly jumping to service a band of guests waving glasses and demanding more ice.  Now the original ice cubes last the whole drink through.  Thus, the refrigerator inflation has created a product quality deflation – as least as far as ice cubes go.

Homes built in the 1950s were built to last.  Plaster, stone and brick provided great quality and durability.  But the McMansions of the past ten years were made of wall board and mediocre wood siding.  They were big and fancy, but weak and flimsy.  The $4,000,000+ homes built that way on Captiva Island, Florida, were devastated by the hurricanes five years ago.  Those built of cement block were undamaged. 

The housing bubble in Florida was partially caused by the poor quality of materials used in cities which did not adhere to the standards of the Miami building code, which was enacted after the winds of Hurricane Andrew wiped out the city of Homestead in 1992.  Later it was discovered that a few Homestead houses were not damaged at all.  They stood like lonely sentries among all the rubble.  Why weren't they damaged by the 140 mph winds?  It turned out that the undamaged homes were built the old-fashioned way by Habitat for Humanity. Contrary to what the press reported, it was not Hurricane Andrew which was so bad.  It was the local building code which was so bad.

Think about the real housing inflation if you factor in the steady decline in the use of quality materials and methods.   Staples instead of nails.  Nails instead of bolts.  Walls not adequately attached to foundations.   Roofs under-fastened to walls.  Wood siding where only cement block can resist hurricanes.   And of course, Chinese wall board.   

There are some exceptions to Washington's under-reporting of inflation.

Some  2010 products offer a vastly better experiences than their 1950 predecessors  – TV sets, radios, refrigerators (without ice machines), automobiles, electric tools and small appliances.  And of course, the world is filled with products which did not exist in 1950 – computers, the Internet, cell phones, electronic games, jet air travel and smart phones.  These offer great advantages over products they replaced (computers over adding machines, email over snail mail, etc.)

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