PracticalDad Price Index – August 2016

PracticalDad note:  The process of writing in the past year has slowed appreciably and has actually come to a stop within the past three months.  There are certainly still things to be written because the situations, observations and conversations with the kids have continued nonetheless, but the process of being sandwiched has risen to impressive levels.  But it is beginning to resolve and my hope is that life will right itself enough that I can get back to this.  That said, I at least managed to get the pricing for the Price Index done.

The prices for the August 2016 edition of the PracticalDad Price Index have been noted and the results calculated and they are, as they were in July, continuing to bounce around at the levels they were when the Index began in November 2010.  The full marketbasket of 47 items actually rose over half a point in August to 100.19 from July’s result of 99.51 (November 2010 = 100) while the 37 item foodstuff only Sub-Index rose almost three quarters of a basis point to 99.74 from July’s result of 99.01 (again, November 2010 = 100).  Certainly there are items that are more expensive than they were at the outset of the project almost six years ago, but enough items have been offset enough in prices to actually bring the average cost of the marketbasket back to a point at which it stood back in November of 2010.

What is notable about this month? 

  • There is yet another product that is being dropped from the shelves by grocers because it apparently doesn’t generate enough revenue to justify its continuance on the shelves.  This store-brand item is still available at a single grocer but even that item was noted to have undergone stealth inflation as the container size dropped from 12.8 ounces to 12 ounces.
  • There continue to be instances in which the shelving is empty at different parts of the store.  There were several instances this month in which the sampled items were absent from the shelves and it was only by locating the shelf label that I could verify whether or not it continued to be even offered.
  • There is yet another instance of stealth deflation as one of the grocers returned it’s packaging to the original size.  The cost is higher than it was with the smaller packaging, but on a per-ounce, price-adjusted basis, it is less expensive.
  • PracticalDad Price Index – July 2016:  Confirming Deflation

    It used to be that you could get a candy bar for a nickel.  Then a year later, you could get three candy bars for a dime.  A year after that, nobody had a dime.

             – explanatory comment about deflation by ‘Dryfly’ to the writer in the comment thread of Calculated Risk, circa 2008

    The prices for the PracticalDad Price Index grocery basket have been collected from the three separate and unrelated grocers and the results continue to confirm deflation and the failure of the Quantitative Easing programs to spark moderated inflation.  The Total Index of the 47 item basket dropped again, this time to 99.51 from June’s 99.90 (November 2010 = 100); the 37 Food-Only Sub-index (the 37 foodstuff items such as dairy, meats, etc) likewise dropped from June’s 100.24 to this month’s level of 99.01 (again, November 2010 = 100).  The upshot?  Although the aggregate cost of the full basket was actually less than at the project’s outset in November, 2010, the aggregate cost of the 37 foodstuff items within the basket was still slightly higher.  As of this month’s result however, that Sub-index is now likewise lower than at the project’s outset in November, 2010.  So yes, hamburger will still cost more than almost six years ago, but there have been enough changes in other items to offset that and lower the aggregate cost.

    You’d say that prices have actually decreased, which is seemingly a good thing.  It’s supposedly what we want, with prices stable or even a little lower so that we can get more for our dollar.  But it really isn’t all that it’s cracked up to be and the opening comment from Dryfly – the nom de blog of an exceptionally astute individual – illustrates why.  Prices for items can go up and down for different reasons, but the largest reason for the prices of everyday items to rise and fall is the aggregate amount of money coursing through the economy.  When there is sufficient money flowing through, normally through family income, people are willing to spend and the price of a particular item is usually the point at which buyers and sellers agree that a sale should occur.  It used to be that you could get a candy bar for a nickel.  But if the underlying money supply begins to diminish, buyers become more cautious about how they spend their money and sellers have to work harder to persuade buyers to spend their money.  Then a year later, you could get three candy bars for a dime.  In a truly deflationary economy however, the money supply held by the public is so low that people simply have no money or refuse to spend what little they have and the sellers simply go out of business.  A year after that, nobody had a dime.  The unspoken phrase in this brief sentence is that there was nobody around to sell a candy bar, either.  This was the Great Depression of 1929 in a nutshell and it’s not for nothing that Ben Bernanke was selected to replace Alan Greenspan as chair of the Federal Reserve since Bernanke’s theses had been about the then-Fed’s errors in responding to the Depression.  People lost their money and businesses lost control of prices as they engaged in bare-knuckle behavior in order to stay in business and more often than not, they went bankrupt.

    So this new monthly Index level isn’t as good of a thing as the Fed would like to see.  It continues to illustrate the effect of the family’s loss of income; for the average family, not only is their income less, but they are now forced to contend with competing demands for their income as other costs are off-loaded by corporations and the government onto their narrow shoulders.  It also says something that despite the efforts of a central bank to inject trillions of dollars into the economy, so little has been accomplished for the family while so much has been accomplished for the uber-wealthy, the .01%.  The grocers are taking multiple approaches to both maintain sales and keep things affordable for the consumer:

  • They are keeping meat prices within reach by starting to contract with high volume meatpackers who sell their products in chubs.
  • They are now including what economists refer to as inferior goods, i.e. items that are cheaper substitutes that wouldn’t be purchased when incomes were more flush.  When I began this project, the most affordable alternative on the store shelf was the generic store brand and the inferior good alternatives were available only at discount grocery stores where the majority of the population doesn’t shop.  But the grocers are now starting to introduce these labels into their own stores so that the store-brand products become the mid-line alternatives.
  • They have always paid attention to the profitability of items on their shelves but now instead of dropping individual brands, they are dropping entire products from any producer so that the consumer no longer has that option within that store.  The logistics of the survey are that I visit the same three stores each month and price the 47 marketbasket items within each for a total of 141 items cumulatively.  Already, I have to account for the fact that two of the three stores no longer even stock one of the original items and that particular item is now dependent solely upon the remaining store for inclusion; if that store were to drop the item, I would end the survey.  This month, two separate grocers each discontinued carrying a single item and that leaves me with two more of the 141 now missing.  I have given thought to discontinuing the project if it reaches a point that so many of the original items are missing that the validity is threatened but it’s not enough of a factor yet that it’s in the cards.  Of course, if it does reach that point that too many of these common grocery items are missing from the store shelves, then it’s moot because we’re going to have far bigger fish to fry instead.
  • The grocers are decreasing their overall inventory and placing less on the shelves.  I’d noticed in the past year that shelf spacing was becoming erratic and in the past several months have purposefully paid attention to the appearance of the shelves.  What I’ve seen is that the grocers do seem to be increasing the empty space between products although I haven’t gone in with a ruler to measure them.  In the case of one grocer, there’s an appreciable difference in the shelf area for non-food personal care items such as shampoos and in another, in the cereal aisle.
  • The grocers have periodically changed their package sizing to meet the situation.  When the QE programs were in effect and commodity prices were rising, products underwent stealth inflation as prices remained the same yet the package sizing decreased so that the net effect was an increase in price for that item had the sizing remained the same.  What I’ve begun to see is the reverse, stealth deflation, as the package sizing is actually increasing with either no change in price or only a moderate increase that reflects an actual price drop in the item.  This has happened several times with store-brand coffee and most recently with the Suave Shampoo brand, which replaced the 22.5 ounce container with a 30 ounce bottle.  In the case of the shampoo, the price changes have not been high enough and when the pricing is recalculated to the original size bottle, the effect is a per ounce price cut.
  • The grocers are also finding ways to mass their purchasing power and force concessions from the producers.  The one grocer is owned by an international firm and I can see how they’re exerting their buying power on the producers as they’re simply cutting prices on more and more items.  There is also the likelihood that they’re driving things down purposefully in order to overwhelm and outlast their smaller competitors; yet the reality is that the prices on similar items are being cut in the other grocers as well.
  • The takeaway is this.  These changes aren’t occurring because the grocers and producers are being kind to stretched consumers.  They’re happening because the grocers have to find a way to maintain sales in a population in which the money increasingly just isn’t there.  And that is deflation.

    And now for the past six months of results.  Note:  There was an error in last month’s table for the June results and I have corrected this in this table.  The correct figures were reported in last month’s text but the numbers were listed incorrectly in the table.  This did not, however, alter the fact that the Total Index for June 2016 did breach the original index floor of 100 for that month.

     

    PracticalDad Price Index – July 2016
    Month Total Index Food-Only Index Spread
    7/16 99.51 99.01 (.5)
    6/16 99.90 100.24 .34
    5/16 100.66 101.60 .94
    4/16 101.64 101.40 (.24)
    3/16 102.86 102.85 (.01)
    2/16 103.86 104.27 .41

    Inventory Management on the Other End

    It shouldn’t be this way, but a fair part of being a parent is inventory management as you try to work through all of the stuff that comes into the home.  You are fortunate if you have links to other families with growing kids and are able to save money by sharing hand-me-down clothing.  It’s a great thing but the down side is that you can’t control when it arrives and so you suddenly find yourself working through one or more bags to ascertain what might work.  This process also involves corralling a resistant child who would rather have a tooth extracted than try on clothing.  Dad, it fits, it fits already! kvetches the youngster as he edges towards the door in the hope of escape.  But the process slows as the kids grow and reach their expected height and sense of style and the push to manage the inventory diminishes.  There does come a time in middle age however, when the necessity to manage the inventory again grows and you find yourself handling boxes, bags and paperwork except that this time it’s on the other end of the age spectrum.

    So precisely what do I mean by the other end?  If you have kids when you’re younger, the other end will be the kids as they come and go to college and you suddenly find the living room or garage again full of boxes and bags brought home from school for the summer as they have to vacate dorm rooms and campus apartments.  You turn around and Wham!, you’ve got a raft of debris filling the family space.  If you’ve had kids when you’re older, then the other end will consist not only of the kids returning but also the elders who are liable to be looking to lighten their own load.  About two years ago, my mother-in-law – actually a wonderful woman – showed up to visit and handed me a box of old tupperware containers with the comment This makes me happy, so just say thank you.  The saving grace in this little episode is that it was a ripple on the shore compared to the tsunami that arrived years ago when two elderly relatives on both sides of our family entered retirement facilities in the same summer, an event from which my garage has never fully recovered and has led to the requisite rental of a storage unit.  That summer’s nadir was the arrival of a one-horse plow fished at the last minute from the suburban backyard shed of an elderly grandmother, who had kept it out of a sentimental attachment to her North Carolinian farmer-father.  That it wound up at our house was a testament to the amount of items and the rapidity with which they had to be disposed.  My wife’s thought was just bring it north and we’ll figure out what to do with it.

    Why go to the effort of trying to sort and manage it instead of just tossing it into a dumpster?  First, there is actually an emotional component to some of the items.  I began writing this article in my spare time three nights ago and last night, Eldest – now a college graduate – inquired about a half-completed quilt begun for her many years ago by her now-deceased great-grandmother.  It is presently wrapped and stored in our basement and I suspect that she’ll pull it and complete it herself.  But the other reality is that there are also heirloom and economic issues as well.  Our own children will become adults and anything that we can do to help get them established – and providing them with quality furniture checks off that box – is worth the effort.  They might not appreciate an heirloom solid cherry desk or bedroom suite now, but I expect that they will when they’re older and don’t have to fork over money for knock-off imported crap.  It’s not for nothing that we took in a 75 year old single owner Baldwin baby grand piano from a deceased family friend; Middle already loves the instrument and we’ve all agreed, even his siblings, that it will someday go to him when he is capable of taking it.  What that means for us is that we’ve had to rent a storage unit and take care of what and how we place furniture there in order to maintain it and prevent its ruin.  It also means an on-going review and debate of what we can and need to keep as we move forward. 

    What are some of my criteria?

  • First, is there a story or something truly personal about it?  A hand-made wool Navaho blanket given as a wedding gift to my parents more than six decades ago…stays.  A half-completed quilt for a great-grandchild…stays.  A stack of blankets/towels/linens from Target…gone.
  • Is the item one that will actually have a perceptible use or value to myself or one of the kids within the next X number of years?  Toolbox full of old shipbuilding tools?  Gone.  Excellent condition baby grand piano?  Stays.
  • Is it better shared elsewhere if there’s historical or collectible value yet space is an issue?  Maybe that vintage Wehrmacht microscope with Zeiss optics and signed factory inspection papers is better served at a museum than in my attic (actually happened here).
  • In the alternative, can I better use the money from selling or donating it?
  • Can I properly store the item without causing it damage and would proper storage be cost-prohibitive?
  • Does my better half likewise agree with the decision?  If not, then it’s probably best to just suck it up and manage until the situation resolves itself either via change of circumstance or mind.
  • If you sit back and consider them, you’re likely to find that there are other decision criteria than what’s just listed above.  But the important thing is to understand that the time is likely to come when you’re going to be involved in helping to manage the inventory of elderly friends and relatives.  When it does, determine your criteria and then hew to it as closely as possible.

    Just what did happen to the horse-drawn hand plow?  After a few weeks sitting in the garage as we worked through the other items, my wife suggested that I contact a local state historical museum that specialized in early American agriculture and I did so, leaving multiple messages over several weeks with the director and receiving no response.  Several weeks after the last phone call, the plow went to the curb to the curiosity of neighbors and garbagemen.  Two weeks after that, the museum director called me back.

    But at least the plow was out of my garage.

    When Does Fatherhood End?

    So here is a question for you.  When does fatherhood end?

    It isn’t rhetorical, but one that you’ll have to wrestle with frequently as the kids grow.  Stages of growth change as one passes into another and each with its own set of challenges

    PracticalDad Price Index – June 2016:  We Just Broke the Buck

    The PracticalDad Price Index for June 2016 is completed and calculated and the results are simple.  The Total Index of a market basket consisting of 47 grocery store items again lost ground from the previous month and broke the buck, actually declining to a level below its initial start point in November 2010.  The June 2016 Total Index declined to 99.90 (November 2010 = 100) from May’s near-zero reading of 100.66.  The Food-Only Sub-index of 37 foodstuff items within the same marketbasket likewise lost ground from May’s level of 101.60 to this June’s reading of 100.24 (November 2010 = 100).

    What precisely does that mean?  Simple:  It now officially costs less to buy the market basket of 47 grocery items than it did at the beginning of the survey in November 2010.  So much for Quantitative Easing.

    What does it mean to break the buck?  The term comes from the money market group of mutual funds and refers to the scenario that all money market managers try desperately to avoid – when the Net Asset Value of their fund’s actual investments decreases below the $1 per share floor.  Understand that money market funds are considered to be the safest investments around since they invest their proceeds in extremely short term debt instruments, which are of such short duration that they are considered ultra-safe.  But while safe, money market funds aren’t insured by the FDIC so the managers work assiduously to ensure that their share Net Asset Values don’t break the buck and breach the $1 floor, an event with signficant psychological impact upon the fund-holders.  The last time that a fund did so was in 2008, at the height of the financial crisis and the government actually created a fund to insure and stabilize that market.  As I sat and reviewed the results, it seemed to be an appropriate term that’s applicable to situation.  The Fed’s intent with the multiple Quantitative Easing Programs was to invoke inflationary pressures and so long as they could inject liquidity into the system, it managed to create a modicum of steam to drive inflation.  But the ending of QE 3 in late October of 2014 doused the boilers and brought a deflationary return that commenced within only two months and has continued almost continuously since then.  What it took the Fed to accomplish in 49 months – with some help from real supply/demand issues in beef and dairy – has been simply reversed back to, and beyond, the original point in only 18 months.  The Fed must indeed feel like that 2008 Fund manager as they too, break the buck to a point where they don’t wish to be.

    And now for the past six months of results.

     

    Month Total Index Food-Only Index Spread
    6/16 99.82 100.07 .25
    5/16 100.66 101.60 .94
    4/16 101.64 101.40 (.24)
    3/16 102.86 102.85 (.01)
    2/16 103.86 104.27 .41
    1/16 104.54 105.25 .71

    PracticalDad Price Index – May 2016:  Start Watching the Shelves

    Deflation reigns.

    The May installment of the PracticalDad Price Index is now ready, prices for the 47 item marketbasket gathered at three unrelated grocers, averaged and calculated.  The result?  Deflation continues as the Total Index dropped from April’s level of 101.64 to a current level in May 2016 of 100.66 (November 2010 = 100), a decrease of almost a full basis point.  When I remove the ten non-food items, the remaining 37 item Food-Only Index did increase marginally from April’s 101.40 to May’s 101.60 (November 2010 = 100).  This month’s Total Index drop was fueled by one grocer’s decision to drop the cost of a package of Enfamil formula and another’s decision to significantly drop the price of both adult and children’s store-brand ibuprofen.  Magnify these types of decisions by the untold number of prices that are on the shelves of grocers across the United States and you have a sense of what’s occurring.

    There is another significant difference this month and that pertains to what I’ve noticed as to the inventory levels maintained by the grocers.  There have been occasional blurbs noted online – and I can’t verify where I’ve read them – about what might be going on with the inventory levels at retailers as people might have noticed that clothing racks suddenly appear to be more widely spaced apart than they might have been in a previous visit several months before.  Because the PracticalDad Price Index is a monitor of grocery prices instead of inventory levels, I haven’t paid explicit attention to what’s happening with the product inventory.  It’s something that I’ve begun to notice within the past years in a huh… fashion as shelves might appear to have fewer of the item in stock than previously or even missing it completely, leaving me to work with the shelving label.  But I was taken aback this month to see entire gaps in the frozen food section of one grocer as multiple products were missing in entirety from the case – and the shelves were still labelled for those products.  This observation raised a mental concern and that concern was confirmed when I visited another grocer to find a perceptible difference in the quantity of products on the shelves of the health/beauty aisle.  In this particular store, there was the typical variety of health/beauty products for sale but in far less quantity than I ever recalled seeing previously; there would be handful of an item but it would be set back against the back of the shelf and the front part of the shelf would be completely empty.  Magnify this across an entire spectrum of products in the health/beauty section and it appeared utterly barren.  When I continued through that particular store, I began to note other areas in which the product line appeared to be well-stocked but only because the amount on the shelves had been moved forward but there was very little behind it.  In other words, there was no product in depth on the shelving as I’d seen in previous months or years.

    So what is the upshot?  As family incomes continue to decline and the middle-class American is stretched, this economic emaciation is beginning to move through the greater economy as grocers now appear to be far more actively culling their inventory levels to maintain their margins and profitability.  I’ve already noted that a grocer might opt to no longer carry a product because it simply isn’t profitable – two of the three grocers no longer carry cases of size 3 store-brand diapers, for example – but this is now moving beyond the individual product choice to a broader spectrum.  So when you next walk through the aisles, looking at the shelves and have a huh… moment, there’s a decent chance that it isn’t just you.

    A View From The Ridge, Part 7

    I’ve said before that being an engaged father is akin to hiking a heavily forested area.  The life with kids and their activities is a forest for the trees experience as the rush from one place to the next fills your vision and planner and you don’t always have the opportunity to take a moment to reflect.  But then your wooded trail comes to a ridgeline and you can suddenly see for miles, backwards to where you’ve been as well as forward to what lies ahead and you sit for a moment and take it all in.  Such was the case this weekend as Eldest – who was in middle school when I first thought of this site – graduated from college.

    The benefit of arriving early to grab seats for elderly relatives was that I could look in different directions from the ridgeline.  When I looked in one direction, considering the event in terms of this website, Eldest had progressed from middle-schooler to college graduate.  Middle, the elementary school kid at the site’s inception, had arrived the previous day with his grandparents, who picked him up at a nearby train station where he’d caught a morning train from the city where he himself is now in college.  Youngest, at the outset just entering kindergarten, was now himself in middle school and en route to becoming a truly stalwart adult of honestly surprising capabilities of observation and common sense.  When the doors finally opened and I found seats that worked, my Better Half ushered in her parents and the sons followed with Boyfriend, who had come along unannounced to surprise Eldest.

    In another direction from the ridge was to see things in terms of the college experience and while one was now graduating college, the youngest was still a good two years away from beginning the pathway to higher education; it will probably be a college degree given his growing skill set and inclination, but the reality is that the cost of a degree is such that it can no longer be the de facto choice, the road taken simply because it’s what everybody is expected to do when high school is finished.  My wife and I have now lived through two rounds of college solicitations – and folks, it’s fascinating to see how different the college mailings are from one kid to the next – and prospect visits, completion of the dreaded FAFSA and the excitement of the acceptances and first moves away from home.  What also crossed my mind was that the funding of college was now a family affair.  This was, for Eldest, a communal family effort as her debt-free degree was in due to multiple parts: a decent scholarship that made the difference between this particular university and a local state university; four years of hard work through summer jobs to help pay for her annual contribution to the cause; years of savings and then input into the pot by us; and a lovely piece of generosity from another elderly relative.

    In another direction was the view of my own age and mortality.  It’s now more than two decades since Eldest’s birth and as she has aged, so have I.  Some years ago, a now-deceased elderly friend commented to me that in his head, he was the same guy who once served as a Marine and a firefighter and I have come to appreciate his statement.  All three of the kids have grown up knowing that their father has a physical debility and each has adapted to it through the years.  But it’s fallen most upon Youngest to help pick up the slack caused by the issue and his siblings’ college absence.  It’s a most curious coincidence that he is now the largest and strongest of any of us within the household, most capable of picking up and covering for said slack and I go to lengths to avoid abusing him because of it.  I have to admit that there was conflict between personal pride and common sense during the wait, as I considered a lengthy drive behind the wheel of a 16′ box truck with no cruise control and it was only after acknowledging to myself that I’m no longer a thirty-something young father, that I agreed to let someone else handle that aspect of the move.  I plan to be around for Youngest’s event in less than a decade but there’s a point at which you realize that it’s time to adjust the speed downwards and go for distance instead of speed.

    But doors open, crowds enter and the view fades and you are once again in the forest amidst the trees, waiting for that next moment when you reach the ridge.  Maybe I should make it a point to try for the ridgeline more often.

    Post-Consumer Parenting

    We have many jobs and roles as parents, too many to note.  But all of these things happen to only one purpose – to raise the kids to make their way in the adult world; successfully, we hope.  Much of their success will be dependent upon their own efforts but it’s the simple truth that their efforts will be built upon the foundation that we give them.  If it’s crucial that we teach them about the great, wide world then we have to understand that the world in which we were ourselves raised has changed and that particularly goes to our economic system.  We must now purposefully buck the long-prevailing consumer-model – in which the lion’s share of American economic activity is predicated upon the typical American’s willingness to spend – as that is functionally dead.  We have to now raise our kids to both survive and live within a post-consumer system.

    Post-consumer is a term typically tied to ecology and sustainability.  We see the term posted on the park benches made from recycled plastic products and on cereal boxes touting that they’ve been made from 30% recycled paper and cardboard materials.  It has come about because of the earth-friendly ecology movement that launched in the latter part of the twentieth century and the whole movement has a new-age, California, touchy-feely vibe to it.  Yet post-consumer also has a much more hard-nosed aspect to it that is intimately tied to what we’re seeing in both America and the world around us.  Remember that the words ecology and economics are at their heart related to the same thing, albeit from different angles.  Each is based upon the prefix eco-, derived ultimately from the greek oikos-, meaning household or habitat.

    Ecology literally translates as the study (-ology) of our household or habitat but became synonymous with the environment in the wake of a series of widely covered environmental disasters such as the infamous incident in which an Ohio river, the Cuyahoga, caught fire in the late 1960s.  It was inconceivable to even the most common person that water could be so utterly polluted and fouled that it lost the most basic property of being able to extinguish burning debris floating upon it.  Coupled with a multitude of images of dead and befouled wildlife and adopted as a cause by the then-young and hip Boomer generation and it took on today’s evocation.  Economy is a word likewise coupled with the root of household and habitat but from a different aspect, that of how it is numbered (-nomics).  Step back from the hard-math financial aspects promoted by many economists, economics is at its heart a matter of how our resources are not only numbered but allocated and – boy howdy! – are we looking at the America of today.  Wealth gap, anyone?

    Ours is at least the third generation to be raised under the consumer-driven model of the economy.  This model conceives of the average American – the consumer – as a driver for economic growth and was first proposed by macro-economists in the early twentieth century but didn’t become an economic reality until it was pushed in the years immediately following the Second World War.  The principal economic driver beforehand had been Business and Capital Investment but its collapse in the Great Depression meant that American political and economic leaders began to look elsewhere for a driver to supplement that if not outright replace it.  What made the consumer-model possible was more than just the growth of personal income via well-paying jobs; it was also that many costs previously borne by the individual were now partially borne by other sectors of the economy.  Insurance for health-care costs was becoming a standard benefit for corporations that hired many Americans.  Educational costs for the youngsters was subsidized by the state first via the GI Bill of 1944 and then subsequently through public funding of state supported colleges and universities.  Old age was no longer feared economically as there were corporate and public-sector pensions and the government now guaranteed a base minimum via Social Security.  There was now not only income, but disposable income that allowed for the things – the niceties – that were previously unaffordable to previous generations.  The wants that we’ve now been ably taught to accept as needs.

    The truth is that the consumer-driven model is now functionally dead, an economic zombie shambling along and awaiting the merciful head shot that drops it, allowing it to be kicked into the gutter and out of the way.  The very factors that made it possible are either falling away as we watch or gone completely.  We’ve now seen almost an entire decade of falling family incomes and the wealth gap is increasing to levels unseen since the Gilded Age of the late 19th century.  Health insurance?  Increasingly unaffordable and shifted back to the family and individual.  Educational costs?  Disproportionately expensive and with public funding cut back, costs borne more and more by the family and youth.  Retirement?  Likewise shifted back to the individual with an increasing reliance upon self-funding via the IRA/401k.  The you can have it all mantra with which we were incubated in the consumer-model system is now replaced by a painful and simple reality.  You can’t.

    This sea-change is the truth with which we have to contend and which we will have to teach our children.  It is not, however, a truth that the economic and political establishment wishes to acknowledge.  Establishment mouthpieces such as the Wall Street Journal print missives to the American public telling them that they aren’t doing their part as consumers.  Economists at the Federal Reserve publish studies about Americans not spending and slant their phrasing phrasing negatively when they state that Americans are hoarding money.  When former Federal Reserve Chairman Ben Bernanke spoke to a group of high school educators, his choice of terminology was telling.  When he referenced teens, he referred to them as students and young people; when he referenced adults however, he predominantly used the term consumer with the implication that our job is to raise our young people to be consumers.  In the days immediately following the 9/11 attacks, then-President George W. Bush even spoke to the American people and urged that they shouldn’t let the terrorists win but should instead go back out and shop.  Seriously…shop?  So obviously, spending money matters.  Questioning the consumer model is a threat to the corporate profits that are directed to a smaller and smaller cadre of executives and investors that make up the high tier of the wealthy class.  Questioning this model is a threat to the profitable tenure and security of our elected and government officials, many of whom will exit government to cushy sinecures in the private sector.  Acknowledging this will require the public will for change that is a threat to the cancerous symbiosis between the corporate and political sectors that is, at its heart, fascism.

    The rise of Donald Trump and Bernie Sanders as presidential contenders is a clear sign of the public pushback.  There are commonalities at the core of each movement that ultimately lead back to renewed opportunity for the individual and most importantly, sustainable, living-wage jobs.  There are massive differences in how each candidate would hope to achieve these ends but when you cut through them, the heart of each pertains ultimately to trade, jobs and income.

    This consumer-driven economic model that we’ve followed has been around for longer than the lifespan of most Americans and like anything, it will change and be replaced by something else.  That is at the heart of our present upset because nobody knows with what it should be replaced and such a real-life process is neither as sterile nor academic as it would seem when written on a page.  What the Establishment seems to want is a perpetuation of the model even though they understand that it continues the hemorrhage of the American Middle-Class until the. masses of our countrymen are reduced to a servitude of dead-end jobs and interest payments.  It’s what they know and as the saying goes, if you give a monkey a hammer, then that’s what it’s going to use.  However, that doesn’t square with the great mass of Americans who understand that something is badly amiss yet can’t precisely enunciate what it is.

    So here are the takeaways.

    First, the Consumer-Model economic driver of the past six-plus decades is officially dead.  It has been killed by a combination of falling incomes on one side and competing demands for that same income on the other side.

    Second, the Corporate/Political Establishment has a vested interest in perpetuating this dead model.  The Corporate because it allows money to be extracted from someone else – the Consumer – and redirected to them.  The Political because of unchecked campaign finance practices and a post-political career revolving door into the lucrative corporate sector.

    Third, we cannot assume that whatever replaces the consumer model is already pre-ordained.  What we are witnessing with the utterly unexpected rise of Trump and Sanders are early salvos in a contest between this Establishment and the diverse citizenry.  If the Gilded Age is any example, it will be a contest that will last for decades.  That means that we have to remove our noses from Facebook pages and begin to think in the longer term.

    Fourth, parents must begin to purposefully raise their children so that they aren’t herded into a dead economic system that views them solely as prey.  We must be overt and direct in our conversations with them and we must likewise model an economic behavior of controlled consumption that is, for many of us, uncomfortably new.

    We must become the first generation of Post-Consumer Parents.

    PracticalDad Price Index – April 2016:  The Failure of QE

    Frequently, compiling the monthly PracticalDad Price Index is less than exciting – have you ever wondered how stupid you must look when you’re on your knees checking a shelf label six inches from the floor? – and the results can be dull.  But there are times when it is exciting, and the past number of months are a case in point.  Last evening’s final calculation for April led to an audible sonuvabitch as I considered the number on the spreadsheet.  The Total Index result for the 47 item marketbasket dropped by more than a full basis point to an April level of 101.64 while the 37 foodstuff item Food-Only Sub-index declined by almost one and a half basis points to an April level of 101.40.  What does this mean?  It means that everything that the Federal Reserve has tried to achieve with three rounds of Quantitative Easing, the trillions of dollars added to the money supply and their own balance sheet in an effort to spur inflation, is being utterly wiped away in abject failure.  Unless, of course, you’re a hedge fund manager with assets in the market. 

    The 47 item grocery marketbasket index began in November 2010 with a baseline index of 100 and through QE programs 2 and 3, the programs were able to induce a degree of mild inflation to offset the dread deflation.  But QE 3 ended at the end of October, 2014 and the 37 item foodstuff sub-index subsequently peaked in December, 2014 – only a month later – with a sub-index reading of 115.13 (again, November 2010 = 100).  To purchase the same 37 foodstuff items more than four years after the outset of the Index would have cost 15.33% more at the peak.  And now?  Less than a year and a half later, with no QE, that has been almost wiped away and the indices are once again back where they were in the first quarter of 2011, only months after the start of QE 2. 

    Take note of one particular element of the data listed below.  The final column is labelled Spread and is literally the differential between the Total Index and Food-Only Subindex results.  For me, it’s an indication of where the activity within the marketbasket is taking place, whether the 37 foodstuff items alone (for a breakdown of the items surveyed, see here) or whether there’s more effect among the ten non-foodstuff items such as soap, ibuprofen or trash bags.  What I’ve come to find is that the foodstuff segment of the Index is more sensitive to factors than the more stable 10 item non-foodstuff segment.  Most of the rise in the Index has been fed by this more sensitive foodstuff segment and during the last months of the QE 3 program, the spread between the two was at times greater than three basis points with the Food-Only Subindex leading.  But this month is only the third time in more than 65 months of consistent pricing that the Subindex trails; food led the way as an inflationary indicator and now it leads the way as a deflationary indicator. 

    It shouldn’t have been a surprise since the first part of the week brought a mailer from one of the surveyed supermarkets, which touted Thousands More Prices Just Dropped.  This market, along with the two surveyed competitors, have taken multiple steps in the past year to adjust to the economic environment of increased food stamp usage and diminished family incomes.  New suppliers have been found for their store brand offerings and cut-rate products are now sitting on the shelves for the price-conscious.  Yes, meat is still higher than it was at the outset years ago, but that kind of supply/demand imbalance brought about by decades-low herd sizes doesn’t end even remotely overnight.  It can be mitigated by factory techniques brought to the meatpacking industry and this is happening as more stores are now selling their 80% lean ground in factory-packed plastic tubes called chubs.  Yes, more temporary supply dislocations brought about by factors such as avian flu can arise, but these resolve more quickly and the products, especially eggs, are lower in price than they were.  Yes, commodities such as sugar and coffee have suffered stealth inflation so that they’re now sold in smaller containers, but even their prices have ebbed from their previous highs as the hot money of QE has ended.  But the problem of the diminished family income, further weighted by new claims upon it by higher education and healthcare costs, isn’t so easily treated.  So the grocers do everything within their power to make their products more affordable so that they can compete and this bareknuckle price competition is symptomatic of deflation…brought about by a smaller money supply amongst the general public.

    Which is perversely fascinating given all of the money that’s been created by the Federal Reserve since the initial Quantitative Easing attempt began more than seven years ago.

    This little datapoint of the prices at three unrelated grocery stores is fully related to the much larger issues being revealed by the chaos of the 2016 Presidential Electoral Process.  Massive amounts of money have been created out of whole cloth yet so little is reaching the general public that true deflation is being exhibited by the pricing and production behaviors of the grocers, as close to the first line of consumer spending as any line of business on the planet.  It’s this political anger, fueled by unpopular trade policies and protracted military engagements that remove living-wage jobs and detract from important public investment, that gives literal rise to the figurative middle fingers of both left and right of the political spectrum to the establishment mandarins.  Make no mistake about it, the anger from both sides is coming together as the divides are two sides of the same coin with the common element of anger directed at this government/corporate beast that we’ve allowed to be created.

    So what happens to the prices going forward?  While my guess is as good as anyone else’s, the bet is that they’ll continue to decline.  Some items are more expensive than they were five and a half years ago, but there will be enough offset elsewhere that the cost of purchasing a marketbasket of the same items will actually be cheaper than they were at the outset.  Unless they either re-institute another round of QE – which would be disastrous without fundamental changes to the existing system that’s already created such divisions of wealth and class – or find a way to promote the creation of sustainable, living wage jobs, then the hemorrhaging and deflation will continue.  So, here are the indices for the past six months.

     

    PracticalDad Price Index – April 2016
    Month Total Index Food-Only Index Spread
    4/16 101.64 101.40 (.24)
    3/16 102.86 102.85 (.01)
    2/16 103.86 104.27 .41
    1/16 104.54 105.25 .71
    12/15 104.92 106.39 1.47
    11/15 104.79 105.97 1.18

    Driving Up the Cost of Higher Ed:  Bette and the New Educational Baseline

    Before he departed for his freshman year in college, Middle and I were talking about student debt and the high cost of a college degree.  He looked at me and asked “How in the hell did this happen?”  This article is the third in a series that tries to make sense of what in the hell did happen to so disproportionately ratchet up the costs of higher education.

    The cost of a degree didn’t just skyrocket willy-nilly over the course of decades, much as the shuttle Challenger didn’t just explode and the Titanic didn’t just sink.  In each instance, there were a variety of reasons that came together to set the stage for the events in question by guaranteeing that higher education now had a far more massive demand for its services than ever existed previously in American history.  In terms of the demand for higher education, the first factor was globalization and the knowledge-based economy.  The theory was that the lower-end and unpleasant manufacturing would be farmed out overseas and the Americans would, in their wisdom and foresight (and for those with Asperger’s, this is sarcasm), keep the higher-end technical manufacturing, administrative and service functions here.  The second factor – and the one that we’ll explore here – is also business-related:  starting in the 1970s and afterwards, the business community shifted the educational baseline for employment from the high school diploma to the college degree.

    A reasonable part of the shift during the last quarter of the twentieth century was objective.  The baseline for academic performance – rightly or wrongly – is the SAT and since the the Golden Era of the 1960s, the average SAT scores on both the verbal and math components had dropped consistently.  There was also continuing criticism of the public school system and its apparent inability to prepare young people to compete in the workplace.  No, folks, what we discuss today has been around in one form or another for decades.  American business through the 1970s and 1980s was in the process of having its lunch eaten by the Japanese and Germans and entire industries were simply being destroyed.  Remember the textile industry?  Foreign competition was hungrier and the sense was that the former Axis powers had lost the Second World War but were well into the process of winning the peace.  Given these factors, the push was on in the business world to recruit more and more college graduates to work instead of those with potentially suspect high school diplomas.  Hey, our high schoolers might be idiots but the good ones go through the still-respected college system and are ready to roll in the workforce was the attitude.  If you are old enough to recall the stories about Ford Pintos catching fire and Chrysler employees sending cars out the factory doors with empty bottles rattling around inside the car doors, it actually made sense.  This gave the kids another four years to mature and gain a better education in preparation for the world.

    But increasing global competitiveness wasn’t the only reason that businesses shifted their baselines upwards.  The other reason was simply a question of cosmetics and I was privileged to be intimately acquainted with two separate instances of cosmetic baseline changes.  The first instance was cosmetic in terms of appearance to other businesses.  My first real job was when an employer hired me as part of its first group of college-educated “professional” hires for a particular operational area.  It was the job that actually paid me enough money to allow myself to move out of the family household, where I’d lived for a year after my own college graduation and it pertained to ceded reinsurance.  You can certainly refer back to the link, but the best real-world example is that of a bookie laying off bets with other bookies so that he isn’t wiped out should that million-to-one shot actually pay off.  Many insurance policies were written with reinsurance provisions that allowed a company with a large loss to be reimbursed by other companies and it was my job, along with the others, to review all of these losses and first ascertain if a reinsurance provision existed, then determine the amount to be billed and finally to get the money back from them.  It is an arcane, technical arena of insurance and the hubs for such work are all in major cities such as New York, Los Angeles, Munich, Atlanta and London.  My hire came about because the operations director for my new employer had looked around and noticed that everyone with whom his department interacted to retrieve the monies had, at the minimum, a bachelor’s degree and in his mind, they’d be more willing to pay if they had faith in the competence of the people doing the billing.  It made sense cosmetically.  But the reality was that with adequate training, the job didn’t actually require a college degree as much as the capacity to focus and a simple willingness to learn and this was something that the majority of the existing non-college staff had in abundance.  We new hires did have to undergo two full weeks of classroom training before the director even allowed us onto the floor to shadow our non-degreed trainers and to say that it was uncomfortable was an understatement.  The demand for a degree was further fueled when these same staffers were told that if they wanted to go anywhere else within the company at or above their pay-grade, they would now require a college degree.

    The second instance of a cosmetic baseline change was to demonstrate perceived competence to prospective customers, even if the job again didn’t require a college degree.  Hey, we’re better!  Our people have college degrees!  I left the reinsurance position to move to a smaller city where my better half was in school.  There was no hope of another reinsurance job but I managed to swing another hire as a commercial claims adjuster for a regional insurance carrier.  It is a mystery greater than the disappearance of Amelia Earhart that the claims manager and supervisor actually hired me since I had no actual experience doing this and simply had to learn on the spot, absorbing information and settling claims across a spectrum of insurance lines – workers’ compensation, commercial and auto liability.  But it was also another uncomfortable situation since that company had instituted a college-degree requirement for all claims adjusters.  That meant that any future hires into adjusting positions had to be college graduates and that any future promotion for an adjuster was predicated upon the completion of a degree; another increase in the aggregate demand for a degree.  Because I didn’t receive the home office training received by new hires with a degree, I was literally dependent upon the goodwill of those around me, most especially those non-degreed adjusters now locked into a position.  When one of these adjusters – Bette – asked me to help clarify her purported confusion about a liability case, I agreed to do so and then smuggled the file out of the office to study it that evening to find the appropriate response.  When I gave her my response the following morning, I passed her test.

    Bette was the perfect microcosm for the debate on whether a degree was truly necessary.  A claims adjuster is the person who proverbially walks behind cleaning up after the elephant parade; the adjuster is dealing with those who have had a loss and it’s not uncommon to take undeserved heat arising from misplaced anger.  The questions that arise also beg answers that don’t come from calculators:  How do you compensate someone for damage to an arm or leg?  Does a person who is considered ugly deserve less for a scar than someone who isn’t considered ugly?  How much does someone deserve for pain and suffering?  It was Bette’s handling of a particular case that taught me a life lesson in assessing value, detail and negotiation.  Our insured store’s security had publicly and wrongly detained an African-American educator in a neighborhood store for alleged shoplifting, immediately afterwards releasing him when the manager realized his innocence.  A claim was filed for wrongful detention and the insured wanted to see it negotiated promptly so as to avoid a publicly humiliating trial.  The case was assigned to Bette and she visited the educator and his wife, departing their home with the skeleton of what became a mutually satisfactory settlement after only the first visit.  What she noticed on the visit was a variety of travel magazines on the coffee and end tables and she used that as a departure point for cordial conversation.  After they began to discuss their claim, it became the segue to a settlement when she tied a potential amount to the cost of a vacation in their dream locale.  The upshot was that the couple happily had a two week vacation for considerably less than a possible jury verdict.  This case demonstrated more than anything that the college degree was utterly irrelevant to performance of the job at hand.  There was nothing about 120 credits of academia that could have successfully concluded this case, or almost any other for that matter.  What was required for a successful career was simply native intelligence, good people skills and an acute ability to observe.

    There is a time and a place for higher education.  I want my bridge-builder and aircraft designer to have a good basis in engineering, which can only come from concentrated study.  I want my Family Practitioner and medical researcher to likewise have skills that only arise from concentrated study.  But the simple reality is that we’ve allowed ourselves to be told that the only route to financial success is via a college degree and business hiring has now cast that into cement and again, the only winner is the institution of higher education.