Shop Smart to Fight Inflation
e Associated Press reported on November 18, "Markets Dip over Fed Fears; Reserve indicates it may need to hike interest rates much higher." This has made the Federal Reserve about as popular with Wall Street as Dr. Seuss' Grinch at any Christmas party, but let's stop and think. Jerome Powell is raising interest rates to compel us to do what we can and should do on our own; refuse to pay inflated prices for anything we don't really need. Another way to state this is that consumer education can be even more effective than the Fed's efforts to control the money supply.
Let's start with Fisher's Equation that says MV = PQ where:
Anything that Doesn't Add Value is Inflationary
Inflation is, as we well know, the result of too many dollars chasing too few useful goods and services. Consider, for example, Geoffrey Chaucer's Pardoner, a medieval indulgence peddler whose story laid the framework for Rudyard Kipling's The King's Ankus hundreds of years later. Three men "found Death" in the form of a purported treasure because they killed each other instead of sharing, as did the men who found the King's Ankus; the jungle boy Mowgli and the black panther Bagheera are essentially spectators in the story. (Mowgli regards the jeweled ankus as useless because he can't eat it while Bagheera, who has spent time among humans, knows just how dangerous it is even though he has no use for it either.) The Pardoner was otherwise a complete charlatan who offered forgiveness for sins, and reduced time in a conveniently invisible Purgatory from which, if it existed, dissatisfied customers could not complain.
But sirs, o word forgat I in my tale,
I have relikes and pardon in my male,
As faire as any man in Engelond,
Whiche were me yeven by the popes hond [given by the Pope's hand]
If any of yow wol, of devocioun,
Offren, and han myn absolucioun [have my absolution for your sins],
Cometh forth anon, and kneleth heer adoun [kneel down here],
And mekely receyveth my pardoun:
Or elles, taketh pardon as ye wende [take pardon as you travel],
Al newe and fresh, at every tounes ende [town's end],
So that ye offren alwey newe and newe
Nobles [coins] and pens [pennies], which that be gode and trewe [good and true].
One of the Canterbury travelers called out the Pardoner as the fraud he was but suppose instead the people had in fact given him silver coins and pennies for the chicken bones or whatever he was offering as relics from dead saints. The Pardoner could have then used this money to chase real goods and services, but he would have created none so the overall effect would have been inflationary.
Suppose for example the entire medieval economy had consisted of two things, bread and indulgences. Then MV = p(bread)*q(bread) + p(indulgences)*q(indulgences) with the latter being complete waste, with the result that the economic activity associated with the production of bread would have had to carry the sale of indulgences as well. This would have almost certainly been inflationary.
Extended Warranties as Medieval Indulgences
Indulgence peddling has long been discredited but it has found a new incarnation. Car dealers and others like to sell extended warranties , which are a complete waste of money . While nothing in this article constitutes formal engineering advice, the manufacturer's warranty (on anything) covers the relatively high-risk early lifetime of the item, when failures can happen from defects in manufacturing. The extended warranty covers the period during which failure is least likely , which means (again) the warranty seller is taking money without delivering commensurate value and utility. Suppose an extended warranty on a car costs $1000, which adds $1000 to MV and has the sole redeeming feature that this is taxable economic activity, but it also gives a non-value-adding entity $1000 minus taxes paid to spend on valuable goods and services, thus driving up their prices. Henry Ford wrote long ago that everybody and everything must produce or get out, and consumers should refuse to carry non-value-adding entities.
Advertising as Waste
Consider advertising fees that car dealers pack into the sale price of new cars. This can amount to $600 for a $30,000 car, but do you get a better car or more value for your money? No, the $600 is squandered on non-value-adding activities. The people who receive ("earn" is probably not the right word, as they have added no value to the transaction) the $600 can now use this money to chase goods and services, but they haven't produced any goods or services to go with them. This results arguably in not just waste added to the price of the car, but higher prices for everything else.
If the car dealer insists on packing the advertising fee into the price, just tell him or her that you'll wait until the model year changes and then he or she will have to knock thousands of dollars off "last year's model" to get it off the lot even though it still has the actual remaining life of a brand-new car. Come to think of it, this might be a good idea anyway. In addition, a used car with 10,000 or 20,000 miles on it has most of its remaining useful life but is likely to cost far less than a brand new vehicle.
I have meanwhile heard numerous ads for Pepsi during Penn State football games, and there was of course a famous Pepsi Super Bowl commercial starring Britney Spears, Beyoncé Knowles, Pink, Enrique Iglesias, and also apparently members of the rock group Queen. This must certainly add to the cost of Pepsi, but it doesn't add value and I am not even sure the visibility is useful. It might suggest drinking a soft drink with pizza, chips, or something else but, when people go to the store, they will see a wide array of soft drinks, and personal preference will win out in the end.
Car ads are likely to have the same effect. If a car ad somehow persuades me that I need a new vehicle, I am going to do extensive research before buying something that costs $25,000 or more new to ensure I am getting quality, reliability, and value for my money. It could be the advertised model but it probably won't. We also get real estate ads in our local paper and, if they somehow convince me I need a new house, I will go online to one of the numerous sites that list all the available houses in the region to determine what might suit my needs. These ads may be out of habit, as the only way to find a house 30 or so years ago was to read the classified ads or a brochure, but this is certainly not the case today.
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Refuse to Pay Made-in-America Prices for Chinese-Made Goods
For the purposes of this discussion, "Made in China" refers to the People's Republic of China (PRC) and not Taiwan, a high-quality high-wage country like the United States. During the 1990s, U.S. executives got the supposedly brilliant idea that they could offshore manufacturing jobs to China as a substitute for what Henry Ford said was to put brains into the business; that is, make jobs sufficiently productive to pay high wages to American workers. These executives instead used a technique similar to predatory pricing, except it was legal because they were in fact making money, to drive American-made goods from the store shelves. Then they began to put made-in-America price tags on Chinese-made goods to increase their markup even further.
Consumers should therefore realize that products with fancy labels that are "imported" (if they were "imported" from Germany, Taiwan, Japan, France, and so on, the label would say so) are still relatively shoddy Chinese-made goods, or goods from some other low-wage country, and not American-made goods or goods from other high-wage countries. As but one example, I needed a new belt and went over to the local mall to find a "made in Vietnam" belt with a fancy brand name on it for the made-in-America price of $60. There were also made-in-China "faux leather" belts with made-in-America price tags on them. I ordered genuine leather belts from Zappos instead (see also the Nordstrom Rack) and, although these also were "imported," they at least had prices suitable for Chinese-made rather than American-made goods.
Buy Product, Not Labels (and Think like a Dog)
Consider Ben & Jerry's ice cream at typically $4.49 a pint (per Wal-Mart's web site) versus Wal-Mart's Great Value for $2.49 for three pints. This makes Ben & Jerry's more than five times as expensive. Ben & Jerry's has fancy and imaginative labels but we don't eat labels, we eat ice cream (assuming we do not have to lose weight). These labels, as do pictures in restaurants, take advantage of the fact that humans rely on vision to assess their food, and the same goes for highly attractive dog treats. People pay premium prices for these dog treats even though the dogs do not care what they look like. A dog smells something to determine whether it is edible, and this assessment takes place very quickly. If it is, the dog's agenda is then to get it into his or her stomach as rapidly as possible.
Not only that, Ben & Jerry's is not even healthier than competitors' products. The vanilla brand costs "only" $3.98 per Wal-Mart's web site and has 13 grams of saturated fat and 28 grams of carbohydrate per serving (2/3 cup). "Liquid sugar ," i.e. sugar water, is a major ingredient. Great Value vanilla has 6 grams of saturated fat and 23 grams of carbohydrates, including sugar and corn syrup (ice cream is not however expected to be "healthy" or good for weight loss, this applies to both products) but you pay a lot less for it.
The bottom line is however that utility or value depends on what we can do with something, and we eat ice cream and not labels. If we pay more than five times as much for the ice cream as we have to, this again increases MV but without a commensurate increase in actual goods and services, which is inflationary.
Speaking of dogs, Ben & Jerry's Doggie Desserts lists water, sugar, and corn syrup as major ingredients, along with peanuts. I know of no veterinarian who recommends feeding sugar to dogs. Doggie Desserts are meanwhile far more expensive per pound than ordinary peanut butter (be sure to get the pure kind such as sold by Smuckers, xylitol is toxic to dogs) and I have yet to meet a self-respecting dog who does not like peanut butter. The Doggie Desserts label is admittedly artistic but (1) your dog doesn't eat the label and (2) your dog does not care what the label looks like.
The same goes for other fancy brand names. The store brand is almost universally cheaper and the contents may even be identical. If you compare store brand to name brand bleach, you will probably see identical concentrations of sodium hypochlorite. Store brand aspirin, sodium naproxen, and so on are essentially identical to the name brands.
Don't Tolerate Shrinkflation
There are, and have always been, plenty of people who cut corners to increase their profits. I recall (during the 1990s) taking my father and some family friends to a very expensive restaurant, where we were served essentially children's portions for adult prices. I am sure the restaurant made another dollar or so by skimping on the ingredients (the labor involved in meal preparation does not change) but the first time this happened was also the last.
Another thing restaurants sometimes do is to fill glasses with ice rather than an alcoholic beverage or soft drink, as ice is a lot less expensive. Always insist on "light on the ice" or "no ice" and, if they give you a glass full of mostly ice anyway, send it back. The bottom line is however that, if you are a seller, you will cut corners with me exactly once because the first time will also be the last time.
Don't Pay for Celebrity Endorsements
Again, anything that does not add value or utility is waste. As the seller must pass on the cost of the celebrity endorsement to the customer, and the endorsement does not add value, the customer must pay for the waste. In addition, a celebrity's name or picture on "imported" goods do not turn them into high-quality made-in-America (or Taiwan, Japan, the UK, France, Germany, Italy, and so on) goods.
Shop Like It's the Great Depression
Our parents or grandparents who lived during the Great Depression knew they had to pay for value and utility, and only for value and utility. They couldn't afford to buy shoddy goods with fancy designer labels or celebrity endorsements because the items would wear out or break, and they couldn't afford to pay for anything more than once. Henry Ford's position was that nobody who bought a car from him should ever have to buy another because the first didn't last, and that was with the technology of the 1920s.
There should similarly be zero tolerance for poor quality today. A company sold me an electronic product many years ago that stopped working. The faulty component was something relatively cheap like an HD memory card but there was no way to even open the device to replace it. The manufacturer told me that, as it was out of warranty, I'd have to buy a new one. The manufacturer was certainly within its rights to do this and I was similarly within my rights to buy the replacement from somebody else and write the original a bad recommendation for poor reliability and lack of maintainability all over the Internet. As General Sir Charles Napier once put it, "you may practice your customs and we will practice ours." The first time anybody sells you poor quality should also be the last.
Boxing Day is Your Friend
Chinese-made and other "imported" Christmas cards have made-in-America price tags on them through December 25. The price tags turn into, if not made-in-China price tags on December 26, somewhere between made-in-America and made-in-China price tags because the stores have to get them off their shelves. I bought this year's supply on December 26 2021. The same goes for many other holiday goods including clothing.
Speaking of clothing, you can generally buy from online discount stores year-round. When the season changes, however, so do the price tags because the retailers have to get winter clothing off the shelves for spring, and summer clothing off the shelves for fall.
Additional Resources
Financial talk show host Dave Ramsey's daily show is worth listening to, as was Clark Howard's when it was still on the radio. Ramsey has pointed out many times that the person with the old car is more likely to be a millionaire than the person with the brand-new car because of the cost of buying a new car every few years. Things with wheels and motors depreciate almost as soon as you drive them off the lot. Ramsey also has plenty to say about not taking out student loans to attend pricy private universities when community colleges and state universities will give you as good an education.
Don't spend money you don't have on stuff you don't need; Benjamin Franklin told us this about 250 years ago. Interest spent to service credit card debt is money down the drain. The only thing on which I differ with Ramsey is that I do in fact use a credit card for most purchases, but pay it off when it's due so I never pay interest and I also get 2% cash back. That is, I get a 2% discount on most of what I buy, which I wouldn't get for cash. Here, meanwhile, is Clark Howard's take on extended warranties.
Conclusion
Inflation is the result of too much money (money supply times velocity) chasing too few goods. "Too few goods" are admittedly a consequence of supply chain problems and shortages over which consumers have no control. Consumers do however have control over whether they spend money on overpriced products (those for which sellers expect to be paid for a fancy brand name or celebrity endorsement rather than actual value and utility) and/or waste like advertising costs and extended warranties. It is my contention that money spent on waste is inflationary because it increases the velocity of money without a commensurate increase in the supply of goods and services.