Dystopia Comes Home

Teen and young adult dystopian literature has been around for a while but it’s darkly fascinating to see how the notion that something’s just not quite right is percolating through society.  So it was when I was chatting with Youngest one evening about his school day and found that he had an essay due along with the rest of his middle school English class.  The topic was both surprising and more than a little disturbing:  each student was to describe the one skill that they’d most prize should the economy collapse and things go to hell (my term, not his). 

We’ve known for a while that teens are feeling stress as acutely as adults and that their stress is timed to the school year.  The push for good grades and to ascertain what their career goals – not to mention getting into and funding the right school – make their teen years significantly more tense than it probably was two or three generations ago.  But throw in the refrain that a college degree has now supplanted the high school diploma as the baseline paper for some degree of financial success and the understanding that they’re likely to graduate with the equivalent car loan around their neck for a barista’s position, and they get it.  The question that it begs afterwards is how long this condition can last; more importantly, what happens to society afterwards?  So their literature has come to mirror adult literature with authors tapping into the zeitgeist to work through the issues.  Teens have seen their fictional societies ravaged by despotic regimes (Suzanne Collins’ The Hunger Games), aliens (Rick Yancey’s The Fifth Wave), nuclear post-apocolyptic societies (Veronica Roth’s Divergent series), and zombies (James Dashner’s Maze Runner and Charlie Higson’s The Enemy series).  Having seen each of these series come through the household with one child or another, I can only ask myself what else could possibly go wrong? 

But this particular essay assignment doesn’t have the Shakespearean suspend your disbelief quality that all of the previously mentioned series share.  This has an immediacy that touches them deeply.  Youngest’s generation is a group that has seen parents downsized and has seen a suburban school district host clothing drives each year, an event that didn’t exist until just a few years ago.  A nearby city school district has a Friday power-pack program that hands out hundreds of food-filled backpacks to students so that they have food for the weekend and don’t return to school the following Monday suffering from hunger.  This isn’t fiction and this isn’t unbelievable.  For them, this is real.  I don’t know what the teacher’s thought process was behind the assignment and I don’t know if that individual is a closet doomer or just looking to spur thought; I frankly don’t plan to bother finding out.  But it’s still an eye-opening assignment.

So as Youngest and I spoke, I inquired as to what his response was and after sharing it with me, we talked further about it.  My own comments afterwards were to what I myself would consider the most important skill set and not surprisingly, it had to do with the ability to determine what holds value for people and then knowing how to negotiate and barter.  Because if the s*&^ hits the fan as the phrase goes, money will rapidly disappear and we’ll be working on a barter basis.  The conversation ranged to the highly practical – and cynical – view of human nature and that perhaps the family’s stash of alcohol could be divvied into smaller containers for trade or supplemented with airline bottles.  It might even be of benefit to further supplement the stash with a supply of cartons of cigarettes for trade.  Is it an optimal outlook?  No.  But this type of scenario is going to require a pragmatic and clear view of the world around us, very different from what out youngsters have come to expect in their politically correct school cocoons. 

It’s been an interesting thought experiment in the days since that conversation.  If there is an economic collapse – and the constant 24/7 newscycle feeds that fear – what should you expect?  What do you believe that would resemble and more importantly, what is your plan?  How would you plan to handle the first several weeks if there’s a Greek/Cypriot style clampdown on bank ATMs or even a wholesale bank holiday?  Who is in your network of close friends upon whom you rely and in turn rely upon you?  Most importantly, what and how do you teach your children so that they can make their way as self-reliant and capable adults in such a world?  It’s not a theoretical question but goes to the heart of being a parent since our primary job is to raise the children to become self-reliant, productive and moral adults capable of making their way in the world

I doubt that my conversation about bartering booze and smokes necessarily fits into the category of moral, but it can help get through the immediate crisis period while we work on the other skills that would serve them better in the long-haul.  And it’s also part of our parental purview to help them determine what those skills are and how to foster them along.  So make an effort to prompt them on their days and their assignments.  The results can be more revealing than another piece of classwork designed solely to get them through the next standardized test.  And a note to myself – get a final copy of Youngest’s essay from his teacher.  It’s going to be an interesting read.

So, Who Do You Like?

The question about the upcoming presidential primaries for the 2016 nominees has arisen on both end of the spectrums, from one of the kids as well as from my mother, who popped it during a lunch the other day.  So, who do you like?

While it would be a beautiful thing to be able to spit out a response in favor of a singular candidate – because it’s just time for a woman president, that’s why – I find that it’s difficult.  The reality is that the issue overshadowing all else is the control that the uber-wealthy and corporations now have over the legislative and electoral process.  And by uber-wealthy, I mean those who have .01% of the nation’s wealth…welcome back to the age of the Robber Barons. 

So the question arose again the other night where two of the three kids were gathered with us awaiting Middle’s event.  Both my wife and I looked at one another and the statements were identical and concise:  It doesn’t matter.  Taxes will go up regardless of who’s in office and Sanders is the only one with the guts to acknowledge that that’s going to happen.  But if Trump makes his way into office, don’t be surprised if they increase there either since it’s a mathematical certainty that the revenue will only flow if the taxes go up…because God knows we can’t control our spending.  We both elaborated further, knowing that the problems are wholly systemic and metastasized throughout the governmental body.  If you want to know the truth, the ideal candidate is already resigned to the notion that it will be a single term presidency and he/she will lose, if even willing to run for a second term.  Because the system will have to be shaken to the core and if successful, that President will be hated and derided and probably for a generation.  To call it a sobering commentary would be an understatement.

Here’s the thing behind the commentary.  Twain wrote that while history doesn’t repeat itself, it does rhyme and we’re now in a literal nursery rhyme with Andrew Jackson’s clash with Nicholas Biddle’s Second Bank of the United States.  In that instance, Biddle put the screws to the country by betraying its role as the ostensible central bank and withholding funds from smaller banks in order to pressure the Congress to renew their original charter.  This resulted in multiple small bank runs with the resultant ruin of thousands of depositors who lost all of their savings; but it also dramatized the threat that one or a few exceptionally wealthy and powerful individuals could pose to the body politic.  In that instance, Jackson’s response – combative and populist – was to withdraw the government’s deposits from Biddle’s bank, which served as the capital base for all that that bank was supposed to do.  In essence, Jackson allowed the financial system to collapse in order to save the promise of the still very young Constitution.  To do otherwise would have been to allow a single individual to use the power of the pre-eminent financial institution to gain control over the mechanism of government.  If Jackson folded and Biddle won, what else would have happened – or not happened – if it displeased the banker.

And with the Supreme Court’s 2010 Citizens United decision that effectively quashed any campaign finance reform, please feel free to explain to me how this is any different from 180 years ago?

Some years ago, I used to spend considerable time on a wonderful financial/economics site and in the course of an evening’s ongoing commentary with other members of that community, I commented this:  My hope is that when all of this is said and done, we come through everything with some semblance of an intact Constitution.  It sounds melodramatic, which I hate, but it’s not at all far-fetched.  The levers of power have been grabbed by the very wealthiest few and the corporations and they are actively solidifying their hold on said levers.  President Obama’s response in his first term should have been Jacksonian, moving to reform and re-institute meaningful regulation of the financial sector and he failed to do this.  That an Assistant Attorney General was canned and his then-Attorney General later acknowledged that the fear of financial damage to the economy affects decisions on prosecutions indicates the level of power of that sector and the fear that it engenders.  And now that the heads of JPM Chase and Goldman Sachs have both become certifiable billionaires under this arrangement, the financial sector is wholly part and parcel of the cabal.

The threat to the country is no longer economic but now, for all intents and purposes, both Constitutional and existential.  My thinking had been that the key factor to my choice of candidate would be what kind of person they’d likely nominate to the Supreme Court and how that individual would vote on such a decision as Citizens United.  That decision was reached by the narrowest margin of 5 – 4 and the dissenting opinion by Justice Stevens – eminently worthy of the read here – is a good distillation of the ultimate controversy:  with whom does the power reside?  I have become convinced that the trade and monetary policies of the past three decades have been purposefully passed with the understanding that they will ultimately benefit only a relative very few and that, at the cost of the great majority of Americans.  The hemorrhaging of the median family income isn’t a sudden event, but instead only the damage arising from the effects of three decades of cumulative muggings upon the American Middle Class.  Such is the effect of power moving to the control of a very self-interested few. 

My thinking about the candidate that I’d support went to the type of individual that would be nominated to the Supreme Court.  What would be the political persuasion and most importantly, their attitudes about the Constitution?  Strict constructionist?  Liberal?  It does matter because as much as I can appreciate the constructionist viewpoint, the reality is that we have issues today that would make our Founding Fathers’ eyes bleed.  Some things are the same, yet some are simply not.

At the end of the evening, we found out that Justice Antonin Scalia had passed away earlier that day and the narrow majority that ruled in favor of the Citizens United decision was now moot.  I was unaware of Scalia’s age and believed that the decision to nominate a new Supreme Court Justice would wait until the next president but that assumption is now moot.  It is the purview of any sitting President to nominate a person for the Supreme Court and for either side to cry for a delay is politics at its most venal.  But make no mistake, with the average age of the Supreme Court north of 70 years of age, it’s likely that the next President will also have the privilege of nominating a candidate.  If President Obama does nominate someone who would shift that 5 – 4 margin in the direction favorable to overturning the Citizens United decision, it would still be only a razor thin majority.  So that’s what I’m considering as both sides of the political spectrum continue to throw the middle finger at the political class.  Do I have a list of candidates for the Court should Trump, Sanders, Hillary or anybody else take office?  No.  But I’m not stupid either, and what they say – and how much money that they take – is a solid indication of where they’ll go.  And that’s likely to be where I’ll head, too.

PracticalDad Price Index – February 2016:  Bare-Knuckle Price Fighting…

The pricing for the February 2016 edition of the PracticalDad Price Index is in with deflation in the 47 item grocery market-basket continuing.  As I sat there researching background information to understand something, it occurred that what we’re watching in the retail economy is best described as bare knuckled price fighting.  There was a time when grocery stores were adding upscale coffee kiosks and organic produce sections to entice customers, but that’s now in the past as stores are finding new ways to fight for the disappearing consumer dollar and it’s creating a feedback loop for deflation.  But first, the numbers from this most recent monthly pricing and then some comments both about what I’m seeing on the shelves and how this is impacting the Index.

The Total Index reading on the 47 item PracticalDad Price Index for February 2016 came in at 103.86 (November 2010 = 100), down from January’s 104.54.  The 37 food-stuff components sub-index for February was 104.27 (November 2010 = 100), likewise down almost a full basis point from January’s result of 105.25.  For the Food-only Subindex, this most recent result of 104.27 is fully 70% less than the high-point of that sub-index; it reached a maximum of 115.13 in December 2014 and has declined since that time. 

So there you have it.  More than a half decade of artificially low rates pushing the zero-rate boundary to spur inflation and all of those trillions of dollars of additional liquidity wiped away in the fourteen months since that peak.  Fourteen months and the aggregate pricing is now back at a level unseen since the summer of 2011.  A pound of hamburger and a package of hot dogs are still more expensive than at the outset of the survey in November 2010, as are some other food items, but it’s what has occurred with other items that provide a good explanation of deflation and what’s occurring within the greater economy.

What’s accounting for the ongoing deflation?  Simply put, the grocers are doing everything that they can to fight for the average family’s disappearing dollar – understand that one in seven Americans is now receiving government food assistance – and this consists principally of rolling out new products that cost less to produce, the lowest common denominator approach.  I’ve noticed this within the past year as two of the three surveyed grocers – each part of a separate grocery chain – established new pricing policies that moved towards low prices on store-brand products.  The third grocer is an independent whose store-brand within the past year has been completely replaced by another supplier with an across-the-board reduction in the price of each item surveyed.  But what has happened within the past several months is that one of the grocery chains is now in the process of supplementing its store-brand product line with another line of products that are offered by a grocery industry GPO (Group Purchasing Organization).  The savings on the products are significant; in the case of a can of vegetables, by a full 40% (from $.79/can to $.47/can) and this is being played out among other products within the basket.  It’s also led to a mental debate on whether and how to account for this shifting in the PracticalDad Index.

When the concept for the Index arose in 2010, the pricing was based whenever possible upon the lowest prices for the items and these were, in all instances, the store-brand (generic) lines of products.  Name-brand items were only used when the lower-cost store-brands weren’t available in all of the stores.  These lower priced alternatives to the store-brands simply didn’t exist in the products and it’s only within the past few months that this has fed into multiple products.  Should I account for them or not?  Given that the baseline premise for the survey was a marketbasket of grocery items being purchased by a family with children living within an alloted monthly food budget, I opted to account for the product shift as these items would be purchased by the budget-conscious family in lieu of the now more-expensive store-brand items.  These products aren’t going away and the question that I have, based upon what I’ve seen in one of the chain’s stores, is whether it will actually be the store-brand items going away instead.

I mentioned the term GPO in a previous paragraph and it’s useful to explain what that is.  A Group Purchasing Organization is actually an old concept now brought to the grocery industry.  The first GPO was started in 1910 by the New York Bureau of Hospitals and centralized purchasing of medical items for a number of hospitals in order to maximize buying power and gain price concessions from manufacturers.  This has long since caught on amongst other industries and holds true for the grocery industry as well.  What the Index now reflects is that one of the surveyed grocers now offers the low-end brand created and marketed by a GPO named Topco Associates, LLC.  This GPO is a privately held concern consisting of more than 50 separate grocery retail chains across the country with aggregate revenues in the billions of dollars and the organization uses this buying heft akin to that used by Walmart to gain concessions from food producers.  As I researched the concept of GPO for this article, I came across an online ad touting Do you want to be like Walmart?  The Walmartization of the American economy continues and I wonder where it will end.  As I write this, to my left is an orange can of low-cost coffee now offered by the other grocery chain as a supplemental choice to it’s own store-brand coffee and I surmise that it’s from yet another GPO (as yet to be determined).  And as you’d expect, it’s not good.

And now for the past six months of results.

 

PracticalDad Price Index – February 2016
Month Total Index Food-Only Index Spread
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
10/15 106.17 107.07 .9
9/15 105.21 107.12 1.91

Driving Up the Cost of Higher Ed:  Globalization and the Knowledge-Based Economy

A short while back, my middle child and eldest son – aka “Middle” – asked me how college costs managed to rise so disproportionately over the past several decades.  The resulting article was a response to his question and looked at five different factors, each of which contributed to the present mess in the cost of a college degree.  The first of these factors was Globalization and this article is the first of a series examining the factors in greater detail.

Globalization wouldn’t be the first thing that springs to mind when you think about why the cost of higher education has risen so dramatically in the past three decades.  It frankly wouldn’t be the second or third thing either, since the effect upon the cost of a college degree isn’t primary.  The impact is derivative instead, yet it’s still important because it helped to pave the road for the persistent annual tuition increases as the institutions of higher education realized that there was now a massive and sustained rise in demand for their product:  a college degree.

Globalization is the economic principle that economic progress and advancement is improved for everyone when there is a free-flow of capital, technology, resources and labor across the globe and unhampered by national borders.  It is supposed to be a sort of rising tide lifts all boats effect as the aforementioned inputs flow to that global region best able to utilize them to produce in the most efficient and effective manner.  It is the linchpin concept behind the fiercely debated North American Free Trade Agreement of 1994 and the World Trade Organization, which was instituted by treaty in 1995.  It’s actually a reasonable concept and one that I didn’t oppose when the debates occurred two decades ago.  But where the issue had an impact on higher education was a subsidiary concept:  the Knowledge-Based Economy.

The Knowledge-Based Economy is of more amorphous origin, but the principle is predicated upon the notion that global resources are allocated where they can be most efficiently used until they can be brought to market as a final good or product.  Since one of the basic variable costs in production is labor, it makes intellectual sense to shift lower-end manufacturing – requiring little education and training – to third world locations where a peasant can be paid a small fraction of what’s earned by an American laborer.  This would continue and the First World nations would be left to utilize their own resources in the conceptual, design and engineering aspects of the production.  Higher-end and technical manufacturing would stay in the First World, at least until such time as the tides had lifted the other nations enough that they also had the intellectual and technical capabilities to support the design and engineering components.  Corollary to the Knowledge-Based Economy was the Service Economy, where American workers would be spending their time providing higher end services to run and support the now-displaced production aspects elsewhere across the globe.  I expect that some corporate visionaries envisioned a society in which the great mass of Americans became mandarin-like technocrats in a great machine that churned out profits enriching the lives of all privileged enough to participate.  But I also now expect that there was another group of corporate visionaries who saw this as the opportunity to offshore all manner of labor costs so that unions could be undercut and profits grown.  Understand one small yet highly significant fact from the early and mid-1980s:  there was a shift in how corporate senior executives were paid and stock packages and options now became even more potentially lucrative than salaries authorized by a Board of Directors.

So now start to think of higher education in terms of supply and demand and this is probably where these principles began to have an impact upon the cost of a college degree.  Preceding generations of young Americans had other alternatives to higher education so that there was less demand for it.  Young males could be drawn off into the military via the demands of the draft and the Cold War.  They also had options in sustainable, living-wage manufacturing and trades that did not require a degree.  Fewer women pursued a college degree since there were fewer, then-socially acceptable career paths available to them.  All of these factors meant that there was lesser demand for college, even though the GI Bill of 1944 had opened the spigot to higher education.  But then changes began.  The draft ended and the military shifted to an all-volunteer basis, followed two decades later by the end of the Cold War.  Women began to achieve greater opportunities for careers and there was a decided societal push for women to obtain an education and then a career.  And through the last three or more decades, the trickling shift of American jobs began and then became a torrent.

It was now here, at the end of the 20th century, that Globalization and the Knowledge-Based Economy became fully enunciated as guiding principles and the offshoring of American manufacturing began wholesale.  The resultant demand for a college degree turned the college marketing and admission process into a literal cattle chute and the colleges and universities realized that they had become – for many Americans hopeful for a future – the only game in town.  Even before this point, parents and guidance counselors pushed their kids to go to college so that they could have a better, more fulfilling future.  Mike Rowe, of Dirty Jobs fame, wrote about this in Popular Mechanics in August, 2013.  He described a conversation with his high school guidance counselor in which the counselor touted the value of a college degree, even to a kid who wasn’t certain of what he wanted except for the understanding that his own skill set might be more technical and practical than intellectual.  I can attest to this type of conversation as well in my own experience.  So there was already a presumptuous mindset about the value of college:   but the increased demand that came from social change and the simple removal of other viable options simply drove everybody to the chutes.

But here’s the thing about cattle chutes.  Some of them lead to slaughter pens.

The Cost of Higher Ed:  “How in the Hell Did This Happen?”

PracticalDad note:  The pace of writing over the past number of months slowed significantly, even to a crawl, but the conversations with the kids have continued regardless.  Late this past summer, prior to his own departure to freshman year of college, I was talking with Middle about college costs and he looked at me and asked “how in the hell did this happen?”  It’s a great question deserving of an answer, but like so many others, not one that has an easy answer.  What follows is a series of articles looking at the interconnected factors that have contributed to the disproportionately high cost of college.

Higher Education is a hot, steaming mess.  If you look at the number of colleges and programs offered, you might not think so, but in terms of actually obtaining that college degree, it really is a hot, steaming mess.  When you actually review the data, you find that the cost of tuition has risen more than 1100% since 1978 and what’s even more food for thought is that the linked article was published four years ago, in 2012.  Comparatively, the median American family income has risen only 269% in nominal dollars – a not-quite three fold increase over that same 1978 – 2012 timespan.  Factor in the disproportionate rise in the cost of healthcare by 601% over the same period and acknowledge the fact that more of the burden of these same costs are now borne by the American family than in 1978 and you begin to understand why it’s become such a hot-button issue. 

But costs don’t rise in such a fashion because they just levitate like so many feathers carried in the wind.  There are reasons for this and the reasons are multi-fold and interconnected, one playing out upon another over the course of decades, unnoticed by the mass of people because they’re engrossed in the very short-term necessities of either raising a family and living a life, or just binging on Netflix.  From this perspective, there are five factors that have contributed to our present situation:

         First, the effects of globalization and the shift to a “knowledge-based” economy.  It used to be that entry into the fabled American middle class was predicated upon a sustainable, living wage job that could be had with just a high-school degree.  That it was in a factory was acceptable since the employee could raise a family in a standard that was undreamed of during the Great Depression years, and it didn’t require additional education unless the employee wanted it.  But starting in the 1980s, companies and Wall Street began touting globalization, a principle whereby American corporations maximized their their profit for shareholders by shifting the lower-rung manufacturing overseas and retaining the higher-end positions here.  In this model, Americans would design and engineer the goods that the world needed while the little brown and yellow people elsewhere would have to contend with the workplace drudgery and pollution that came with manufacturing.  That you didn’t need to provide a sustainable living wage and could get a ‘tween-ager to manufacture a high-end pair of sneakers for pennies?  For the win, baby!

         Second, there was a purposeful effort by companies in the late 20th century to alter their job requirements so that the baseline for hiring in a wide variety of positions was now a college degree instead of a high school diploma.  That these same positions were now already successfully filled by capable high school graduates was irrelevant, a degree replaced the diploma as the baseline.  There’s certainly an argument for some of that being the result of a desire to move beyond what was perceived to be a failing public education system incapable of turning out satisfactory candidates.  But I can speak from experience that there were other factors as well.  The predominant reason was that as businesses made this move to a degree the hiring baseline, it created a ripple effect as their competitors felt compelled to do so in order to maintain the semblance of competitiveness, particularly in the eyes of their customers. 

          Third, the effects of shifts in the funding paradigm for higher education.  Where a significant support previously was provided by the government, the burden of educating young people has shifted first to the family and within the last decade, to the student.  I don’t believe that people truly understand the impact of the state and federal governments in the middle of the Twentieth Century upon higher education.  On the one side of the house, the Servicemen’s Readjustment Act of 1944 – aka The GI Bill – made significant educational funding available to millions of servicemen who returned home from the Second World War and literally provided higher education for an entire generation of young adults.  On the other side of the house, state governments boosted spending for their state institutions through the next several decades until the amount spent per student climaxed and then began to decline in the 1980s.  The ebbing has occurred in that while there are still educational benefits for veterans, we now have a volunteer military and the numbers of available recipients is far less than in the decade immediately following the end of World War Two.  Likewise, purposeful budgetary funding per student by most, if not all, state legislatures has declined in the three decades since the Reagan Administration. 

          Fourth, the shift to self funding by first the family and then the student was greased by years of low interest rates and the easy availability of credit.  What’s occurred with the funding of higher education is a microcosm of what’s occurred within public society as well.  As the Congress and Executive began two decades of vicious sniping and attack, it has devolved into a farcical situation in which there is no longer an agreed upon budget but instead a lengthy trail of continuing spending authorizations and debt limit increases.  Because decisions can’t be made and the debt continues to rise, the Federal Reserve has – and I hate to say it, but it’s true – stepped into the breach to delay a day of reckoning by maintaining artificially low interest rates.  So the financial role of government in higher education has shifted from fiscal policy laid out in conscious budgetary decisions to monetary policy as shown by the low cost of borrowing money.  Here’s the difference between fiscal and monetary policy:  fiscal policy is made by consensus, which is often messy and combative as issues are threshed through.  Monetary policy however, simply acts to delay any decisions because there is no perceived cost to borrowing and hence, no need to actually make a decision; can’t make a decision because it’s too unpleasant to hash through?  Don’t worry, we can hold off because it won’t cost much.  On the micro-level of the student and family, the story line for years was that borrowing to finance your education was wise because it was investing in yourself and would pay off in the long-run. 

          Fifth, all of the preceding factors braided together neatly to create an entitlement sense amongst higher education that it simply now had a captive market.  And based upon the ways in which some of the institutions have spent their money, their perception has seemed to be that the market was in the French Quarter as college presidents and administrators strolled down the Rue amidst a shower of cash screaming out laissez les bon temps rouler!  There was no perceived need to keep the spending down – apart from paying for pesky things like permanent faculty – since the money flowed and the steady flow of students continued.  Money was spent on increasing administration, extraneous and honestly unnecessary programs of study and physical plant and student options that are high-end accessories as many of the institutions competed with one another.  And yes, when your brochures are showing photos of climbing walls and Mongolian Grills as student dining options, then that would arguably qualify as high-end. 

So that’s the short version.  Like much else in America, we’ve gotten use to having plenty of options and choices without remembering that these options come with a price tag.  As my father used to comment from time to time:  champagne taste, beer budget.  Over the next several weeks, I’ll expand upon these factors individually because honestly, there’s some fascinating stuff out there.

PracticalDad Price Index – January 2016:  Welcome to the Jungle

The pricing for the 47 item PracticalDad Price Index marketbasket is complete and after looking at the results, the one phrase that crossed my mind is welcome to the jungle.  The changes that I’m seeing from one month to the next are symptomatic of what’s occurring in the larger economy in multiple ways.

In terms of pure numbers, the 47 item January 2016 PracticalDad Price Index declined from December’s 104.92 to January’s 104.54 (November 2010 = 100) while the 37 Food-Only Subindex dropped more than a full basis point from December’s 106.39 to January’s 105.25 (November 2010 = 100).  Please note that for the Food-Only Subindex, the cumulative decline from the December 2014 apex of 115.13 is now greater than 65%; it took more than four years of quantitative easing and loose monetary policy to bring that subindex for the 37 item foodstuff item marketbasket up by more than 15%.  With the cease of QE and persistent economic pressure upon the family, it’s only taken 13 months to undo it.

So how is this akin to a jungle?  You have to understand why the three store average dropped as much as it did in one month – unbelievably (to me, at least), the cost of a pound of 80% lean ground beef actually dropped by an average of 5.4%.  If you’re going to store or watching the news, you’d be in company with me at this drop.  But what was surprising – and informative – was the cause for the decline. All of the surveyed stores sold their 80% lean beef in store wrapped packages but last week, two of the three – each a part of a chain – were selling their 80% in a large, pill-shaped package called a chub instead of the usual packaging.  I’d seen the chubs before, but they had always been for the lower margin/higher fat 73% lean and because they were not part of the survey, I’d simply ignored them.  When the numbers were tabulated and the indices found, I decided to go back to the two stores to examine the beef further.  Each of the chubs, now sold in the two chains, were produced by a firm called JBS LLC, USA; this is the American subsidiary of a Brazilian multinational meat packing firm founded in Brazil in 1953.  As I perused further, I saw that JBS had done a serious job of growth via acquisition of firms both in the US and elsewhere.  They have diversified first across types of protein so that they now produce poultry as well as beef and they’ve diversified vertically by the purchase of massive feedlot operations used to fatten cattle prior to slaughter; in 2008, they purchased Five Rivers Cattle Feeding to make them the largest cattle feeder in the world.  They further extended their control by the 2010 purchase of the McElhaney Feedlot in Arizona, which increased their cattle feeding capacity by more than 130,000 head at one time.  So the producer of the chub is a massive presence in the beef production industry.

What scares the central banks about deflation is that during the Great Depression, money became so scarce that many companies lost control of their ability to set and maintain prices, resulting in their ultimate bankruptcies.  Competition amongst producers simply came down to which could survive long enough, a truly dog eat dog scenario.  This is eerily reminiscent as money continues to flow out of the middle class and budgeted food dollars are replaced only partially by government food stamp programs, placing greater pressure on the grocers and by extension, the producers.  As the preceding information about JBS SA shows, this is a firm that’s built for survival via sheer economies of scale.  What’s also notable about this change in the offering of 80% lean is that the chub is now the package offering for a higher grade of ground beef.  If you accept the proposition that the lower and fattier grades of beef are the province of those with less money, then a shift in packaging to the chub by a mass producer is an indication that the extent of the family budget woes are creeping throughout the middle class.  Obviously, executives at the grocery chains are noticing drops in sales and are aware of why and rolling out a lower priced alternative is the logical response.  However, this is not the kind of indicator that you want to see. 

The jungle metaphor also refers back to one of the great impact novels of the early 20th century, Upton Sinclair’s The Jungle.  Sinclair’s book was a work that exposed the conditions of the meat-packing industry of that period and by extension, the conditions that prevailed overall when businesses were able to operate without any form of oversight to enforce the most basic sanitary conditions.  It helped to establish the mindset that there was a legitimate role for government in the regulation of heretofore laissez faire competition.  One of the later upshots of this was the establishment of the Food and Drug Administration to oversee the safety of what goes on the table.  This isn’t to necessarily say that the packing conditions are horrible and the product tainted, but when businesses get to the size that meat production is akin to factory conditions, then it does make me wonder.

And now to the results of the Indices for the past six months.

 

PracticalDad Price Index: January, 2016
Month Total Index Food-Only Index Spread
1/16 104.54 105.25 .71
12/15 104.92 106.39 1.47
11/15 104.79 105.97 1.18
10/15 106.17 107.07 .90
9/15 105.21 107.12 1.91
8/15 104.96 106.97 2.01

PracticalDad Price Index – December 2015

The data for the December 2015 PracticalDad Price Index was collected and calculated in the past three days and as I worked my way through the refrigerated aisles of the stores, I could only wonder about the price of eggnog.  This is the time that the dairies start rolling out the eggnog and knowing how the price of eggs has risen because of Avian-Influenza effects upon the national supply, I wondered about the lag-effect as this works through the food-supply chain.  It certainly happened with the price of sweetened cereal (store brand frosted flakes) after the price of sugar rose because of hot money flows into physical commodities several years ago during one of the QE periods.  But it’s not something covered routinely because it’s simply not routine and frankly, it’s pricey enough that the typical family isn’t going to spend money on it.  So musings aside, what happened to the 47 item marketbasket this month?

Frankly, there was only a minimal increase in the Total Index for the 47 item basket, rising from November’s 104.79 to December’s 104.92 (November 2010 = 100).  The 37 foodstuff item subindex likewise rose from November’s 105.97 to December’s 106.39 (again, November 2010 = 100).  Bear in mind that the Food-Only Subindex now at 106.39 peaked a year ago in December 2014 at a high of 115.13, so it’s still down 58% from it’s all-time high only a year ago.  There have been no new product substitutions made by the grocers, in which one grocer completely replaced it’s store-brand line at a markdown on products across the board.  Remember that the grocers have very thin profit margins and will be most sensitive to the spending patterns of their customers; as money flees the economy, they’ll be the first to notice the changes in spending patterns via the profit per item on the available shelf space. 

The question now is this:  as the Federal Reserve prepares to increase the discount rate for the first time in years – via a withdrawal of money from the system by way of reverse repos – what will happen to these food prices?  Probably nothing in the immediate future, but after several months…look out below.

Kids and Guns:  Some Thoughts on Firearms in the House

The sales flyer came to the house just a few days before Thanksgiving, a mailer from a well-stocked firearms dealer listing the daily special for each day between November 23 and November 30.  The predominant weapon of choice for each day’s special was a pistol and given the spate about mass shootings that culminated in the ISIS attacks in Paris, most of the daily specials were a smaller size that could easily be utilized by someone with a carry/conceal permit.  Lo and behold, the data from the FBI showed that background checks were done at a rate of 2 per second, the highest rate in its history and higher than in the days after the shootings at Sandy Hook Elementary School.  But even before ISIS hit our radar screens, our society was being hit with an increased rate of random shooter incidents as disgruntled individuals took to theatres, campuses and streets to shoot out their frustration upon the innocent and the public sense of safety diminished accordingly.  Gun control rhetoric has ratcheted upwards – when the NY Daily News photoshops the NRA’s Wayne LaPierre’s face onto the body of an arab terrorist, then rhetoric is officially on a car-lift – and the response of many is to wonder about society’s ability to maintain some sense of order.  If public order is slipping, goes the thought, then perhaps I need to act to protect myself and my family.  It’s a legitimate concern and the reality is that many thinking it have children – and no previous experience with gun ownership. 

So if you’re in this position, what are some of the things that you should consider?  Let me start off by giving a full disclosure:  I have been in this position and am now a gun-owner.  This article won’t go into details about specific steps to take, but it will take a look at some of the broader issues for parents considering firearms in the house.  It’s a daunting prospect given that the there’s real potential for accidental death and injury to children and teens; in 2013, more than 1600 American children died from accidental shootings and more than 9700 were injured.  Let me also state this:  this is also neither an endorsement for or against the decision to bring a firearm into the household.  That is your decision and you are responsible for any consequences that might occur.

Even before you get down to the brass tacks of responsible gun ownership, there are some basic issues to consider.  The first is to think about your own experience with firearms.  In my case, my father was a Korean War veteran who returned home from the war and sold every piece of his hunting, fishing and camping equipment so I not only had no experience with firearms, the household environment was one of absolute avoidance.  I recall him telling me as a teenager that he wanted no weapon in the household because if he ever was in the position of having to pull it on somebody, it would be with the intent of killing that person.  My wife, on the other hand, was raised with a father who worked in the judicial system and was consequently around guns her entire life.  It frankly took years for me to adjust to the concept of having a firearm in the house and it didn’t happen until the kids were older and I was far more comfortable with the notion.

The second issue is to honestly consider your own experience with maintaining self-discipline and whether you keep up with the requirements of anything that you take on.  Are you willing and able to follow-through on a regimen of assuring that the household weapons are not only properly stored, but are even clear of bullets in both the chamber and magazine?  More important than that, if you plan to keep a loaded firearm in the house, how will you secure it so that the kids don’t get hurt?  Almost three quarters of surveyed children under 10 know where their parents keep the weapons and more than a third of those kids admitted to the surveyor that they’d handled them without their parents’ knowledge.  When in elementary school, I lived for a period up the street from a family whose father was an avid hunter.  I vividly recall that I’d visit his sons and the boys – my own age – would pull the rifles and shotgun from the closet and play with them in my presence and without the parents’ knowledge.  Don’t think that the kids won’t know about the guns or won’t find them, because they will.  Even “good” kids are curious and will rummage around closets and even dresser drawers when you aren’t around.

Following on the heels of that is the question of how well your own kids listen to what you say and whether or not they heed it.  It’s an unpleasant question and goes back to the heart of your own ability to maintain discipline amongst the kids in the household.  Two of the keys to successful discipline are whether or not you have a history of both consistency in your discipline and having a reputation amongst your kids of enforcing your discipline, or whether they understand that you won’t follow through on what you say you’ll do.  If you believe that the kids will mind you, then you have to decide on the guidelines for having them in the house and – if you tell them about their existence – what the repercussions are for the kids if they break those rules.  Kids actually do better if they understand the consequences of their actions since it gives them a clear indicator of something’s seriousness.

What precisely is driving the decision to keeping a weapon in the house?  Bad news sells and the media will willingly play up the negative because it jacks up the angst and brings in the dollars.  What is happening with the crime rate in your area?  Do you live in the city or are you in a more remote rural area with a longer police response time?  If you do opt to keep a weapon in the house, then be sure to familiarize yourself with the state and local regulations on guns and home self-defense.  Contact your local law enforcement officials or your state representative, or just Google the damned thing, to see what seminars and classes are being offered locally so that you have an informed base on your legal responsibilities as a gunowner.  It’s highly instructive to hear the local District Attorney discuss the process on what characterizes legitimate acts of self-defense versus something that is legitimately prosecutable as a crime.

Ultimately, if you are going to teach the kids about responsible gun ownership, what are you going to do to teach them?  I would suggest that if you aren’t someone who’s familiar with firearms and are learning now, you find someone who can teach them adequately.  They can learn both a respect for the firearm and household rules from you, but actual hands-on training would probably be better with an experienced individual.  Our own case was that all of us – myself, wife and kids – took individual sessions in gun safety and marksmanship with a man who was a former Marine non-com and combat veteran and taught practical weapons usage; my comments to all of the kids prior to their sessions was that he’s earned the respect and I will make your life unpleasant if you refer to him as anything other than Sir or Mister.  But even after that training, what will you do?  Target shooting has become a requested father/child activity with one of my kids and both of the others have gone on to earn the BSA Rifle Shooting merit badge.  As with anything else, practice and repetition breed comfort and familiarity.  But it’s up to the parent to assure that familiarity doesn’t give way to contempt. 

If you walk through all of the questions and still think that you’re both ready and willing to bring a firearm into the household, then you need to consider both the mental/emotional and physical capabilities and constraints of the kids themselves.  Does your child have the maturity or even the mental capability of allowing a firearm in the house?  Is your child capable of learning how to use what you decide to bring in or is it beyond their physical constraints for his or her age?  If you purchase a weapon that the child is physically unready to handle – whether by grip size or recoil – you had better be damned sure that you’ve secured it.  If you want your child to try a firearm, make absolutely certain that you’ve considered these capabilities.  The incident in which a gun-range instructor was killed by a nine year-old girl firing an Uzi was a stunningly colossal failure in judgment by the girl’s parents as well as the gun range owner and the instructor himself.  As with anything else, take the time to explore the opinions and experiences of others with firearms.  In talking with other fathers about purchasing a rifle, knowing that their own children used them and my own probably would, I found a difference in opinion on the most basic aspect of the rifle:  single-shot or magazine load.  Several fathers believed that starting with the basic single-shot bolt action was important as it forced the inexperienced user to slow down and think about the shot while others had no issue with going directly to the several shot capacity magazine load.

There is no clear across-the-board answer on whether to bring a firearm into the household.  After walking through the issues – those of attitude, safety and practicality – some parents will opt to not take the risks that come with gun ownership while others will decide that they simply cannot accept those risks.  Either answer is correct if you’ve done your full due diligence.  But the common element in either decision is a full review of the factors involved.  That is the ultimate breakdown in responsibility – failing to walk through the different aspects to the final decision. 

Whither Thanksgiving?

There have actually been occasions when I’ve written because I’ve been wrestling with a particular issue and the process of writing has helped to clarify points and issues for me.  This is going to be one of those articles and yes, it does pertain to how a larger American practice is impacting the PracticalDad household.  Most specifically, do I go out for “Black Friday” Christmas shopping on Thanksgiving Day itself?

In the past two decades, Black Friday has taken on an entirely new focus in American culture.  I used to think that the term was a pejorative amongst shoppers and retail staff to describe the conditions that prevailed as people crammed into stores and waited in lines for special loss leader products; I later learned that it actually referred to the accounting ledgers of many retailers, who hung on at a loss through the year as they awaited the post-Thanksgiving holiday buying season and the chance to move into the profitable black.  As a kid, I knew that the folks would take us out on the weekend immediately after Thanksgiving for a Christmas buying spree but over the ensuing decades, that time span between the holiday and the shopping start has shortened.  My own experience with Black Friday began more than a decade ago when a close friend – my may-as-well-be sister invited me to join her for a pre-dawn excursion to shop for presents at a now-defunct mall toy-retailer.  This entailed getting to the mall at 330 AM to find a good spot in line for the 530 AM store opening; the other mall stores would open around 6 or 7 AM.  This began more than a decade-long tradition of grabbing the pre-Thanksgiving newspaper for the shopping ads, which she and my wife would study to find those items that might best work for the Christmas lists for the half-dozen kids that comprised our two households.  It became an exercise in the travelling salesman problem as we would split up lists and hit multiple locations and the cellphone made it a logistical effort worthy of transporting an army battalion.  As our kids aged and wanted to get into the act, this would be multiplied and we’d have four or more individuals in multiple locations, all searching out their particular item for another person in one of the two families and it became a rite of passage for the youngsters to join in the fray.  The culmination of the experience would be lunch with any combination of the two families before heading home for a return to regular activities.  When Youngest was finally old enough to come along for this established tradition, the rest were old enough that they’d moved beyond the toy phase and time had worked it’s natural change upon the process.

Time also worked its own change upon the larger process as the stores opened earlier and earlier and that 530 AM opening became an almost quaint anachronism.  More stores opened at 530 AM and earlier and then the push to be first moved the opening times even earlier into the early morning hours.  This has become a vicious cycle as stores – desperate for sales in an economy with a faltering middle class – continuously pushed the time envelope back further and further until only the other year when suddenly, stores were opening on Thanksgiving evening itself.  As I sit here and think about it, three of the stores at the forefront of the early Black Friday morning sale – KB Toys, Circuit City and Linens ‘n Things – now defunct; it would seem that the desperation by these dying retailers fed a frenzy that’s taken on a life of it’s own.  But there’s now a pushback as stores now purposefully advertise their willingness to let the employees have time with their families and people take note of the seeming callousness of the ones opening Thanksgiving Day.

So here’s the crux of the situation.  I agree that the stores should stay closed on Thanksgiving and hadn’t planned to go out until early Friday morning.  Yet both Eldest and Middle will be working on Thanksgiving Day – one at a mall retailer and another at a local restaurant – and my own family’s Thanksgiving meal is purposefully being moved up to an earlier time to accommodate the evening work shifts.  Youngest has also asked for a specific item that’s being sold as a loss leader at a retailer with a 6 PM opening on Thanksgiving evening.  He’s agreed that the item is costly enough that he’s willing to contribute to defray the total cost and now the question is whether I go to the retailer in an attempt to purchase the item.  Given that it’s a loss leader that would be far more expensive elsewhere, it’s certain that I’d also be leaving far earlier in order to stand in line.  So do I just acknowledge the practicality and give in to an already shot family Turkey Day or do I say no?

So that’s where I’m at.  But whatever is decided, I hope that you and your family have a wonderful Thanksgiving.  We’ll see what happens.

PracticalDad Price Index – November 2015:  Deflation Reigns…

When I began the PracticalDad Price Index in November 2010, there was significant controversy over the outcome of the untried experiments of the Fed’s Quantitative Easing:  would there be a rocketing ascent into a massive hyperinflation or would the economy collapse into a deflationary black hole?  Given the speed with which opposing events occurred both in the Weimar Republic’s Hyperinflationary spiral in the early 1920s and the Great Depression in the early 1930s, it was generally supposed that whatever occurred would be quick and massive.  But we’re now more than five years from the onset of the Index and the third and last QE program has finished and it’s only now that prices are moving far more quickly in one direction than the other.  In this case, downwards.

The index began with a baseline of 100 as of November 2010.  The 47 item marketbasket, priced at three separate and unrelated grocery stores, consisted of 37 foodstuff items and 10 non-food items commonly purchased at the grocery (soap, kitchen trash bags, aluminum foil, ibuprofen and the like).  From this data each month was derived the Total Index (November 2010 = 100) and the Food-Only Subindex for the 37 foodstuff items (again, November 2010 = 100).  While the QE programs existed, both the Total Index and the Subindex rose upwards, although not at a constant or large rate.  The Food-Only Subindex actually peaked in December 2014 at a reading of 115.13; the cost of the consistently priced average basket had maxed at 15.13% higher than at the inception over four years previously.  But since then, the Subindex has dragged the Total Index downwards at a stunning rate.  As of the November 2015 data collection in the three stores, the Subindex has again dropped from October’s level of 107.07 to 104.79; this is a full 68% decline from the high reached eleven months previously.

Here’s some perspective:  it took more than four years for a consistently priced market basket to reach a high 15% above it’s starting point.  And it’s only taken less than a quarter of that time to give back more than two-thirds of that increase.

So what’s behind the collapse in the market basket’s food prices?  This is absolutely deflationary, but why?

Understand more than anything else that inflation is not a monolith.  It might be a wild beast when utterly untamed, such as in the 1920s German Weimar Republic, 1990s Zimbabwe or even today’s Venezuela…but it’s a Hydra and each head is one of the various sources of price increases.  One source of price increases comes from hot money flowing into a particular area of the economy, such as San Francisco in the years prior to 2006.  There’s only a limited supply of something – San Francisco properties – and everybody with money has to have some, so prices go up.  Until they don’t any longer.  Another source is when there are only a limited number of significant suppliers of a particular item and one or more decide to raise prices to pad the profit margin.  This was the case with Kimberly-Clark raising the price of adult diapers because they wanted to pad the profit margin.  This is also now the reason that housing rental rates are higher and growing moreso as the predominant American landlord is no longer some Mom-and-Pop but instead Blackstone Investment Group of downtown Manhattan.  Have you ever seen the neatly printed yard and corner signs offering a toll-free phone number and a standing offer to buy your house for cash?  Have you ever wondered who that is with all of the cash?  That’s Blackstone, at least in my neck of the woods.

Bastards.

But the biggest head on Hydra is the money supply, most notably measured in Economics by both velocity – the number of times that a dollar is turned over in the economy during a specified timeframe – and family income.  We all know that family incomes have declined but the monetary velocity for the supply of money (M2 as measured by the St Louis Federal Reserve Bank) has decreased to lows unseen in the lifetimes of most Americans.  When a family gets a dollar, they will now sit on it, far moreso than in the previous six decades. 

So apart from housing, what is the other principal category upon which a family spends it’s money?  Food.  And it’s here amongst the thin-profit-margin grocers that deflation truly seems to be appearing.  The grocers – corporate and independent alike – understand that their customers are stretched and are doing all manner of change to maintain sales and profits.  The Fed is terrified of a return to Great Depression-style deflation because the businesses lost all control of pricing as money disappeared from the economy and went out of business.  Today’s competition amongst the grocers is no longer based upon upscale stores and coffee kiosks but instead pricing, and bare-knuckle at that.  When a supplier is deemed to no be longer able to provide a cost-beneficial product, that supplier will be replaced by another that will; this is perhaps the key reason that the prices in the three local grocers are declining.

One of the parameters of the survey since its inception is that unless unavailable, all products within the PracticalDad market basket are store brand items.  If one of the three did not have a store brand item, then I shifted to a name brand across all three but that’s only occurred in a handful of the surveyed items.  The idea behind the parameter was that budget minded shoppers will generally forego a name brand in favor of the store brand based upon price considerations.  It is also far more sensitive and responsive to prevailing economic factors than the name brands’ manufacturers, who usually have the financial strength to absorb periodic downturns.  One of the grocers surveyed completely swapped it’s store brand supplier for another several months ago and across the line of products within that store’s basket, the prices declined.  What occurred this month was that another grocer found an even cheaper supplier and introduced some items from that supplier alongside their store brand products.  There’s been a tie-breaking rule that I adopted at the outset of the Index project in late 2010 and have used only rarely since:  in the event of any question, what would a true budget-driven consumer do?  I invoked the rule this month and used the lower priced item, even if not a store brand; the file has been amended and this grocer’s items will be used in lieu of the store brand products.  These items at one grocer were the movers behind the Index decline and should the same situation occur again, the rule will be invoked again.  So that is why we stand where we stand at the moment.  Families must stretch earned dollars and food benefit dollars further to stay afloat and it’s here at the most local level, the grocery store, that the stretch is occurring.  Because the grocers have competition to meet for the dollars and none of them will throw a family to the curb when the rent isn’t met.