Who Should Pay for Higher Education?

Here’s the question:  who should pay for a kid’s higher education?

The default answer – the public – is well-settled at the elementary and secondary levels as each local school district is empowered to levy property taxes to pay for school.  The practice was allowed under the philosophy that it was in the public interest to educate the youngsters so that they could take a functioning role in society and not be a burden.  Some may argue about the technicalities – whether they were trained to be cogs in an industrial state and etc – but the premise remains, that they should have a basic level of knowledge in order to survive.  But what happens after they reach an educational level at which they supposedly have the requisite tools and skills to support themselves?  This isn’t an effort to take any particular stance – I’m still uncertain in my own mind – but is rather an attempt to help myself work through the issues.

The first issue is, what exactly is the point of a higher education?  If tens of thousands of dollars are spent on a degree, shouldn’t you be certain why you’re spending it?  There’s a fascinating chart in Time Magazine’s article on college, College is Dead, Long Live College, that fundamentally displays the disconnect between the educational establishment and the general public.  A poll was taken of adults in the general population and college leaders asking each what is the most important reason to go to college?  The responses are startling in their disconnect and awareness of what’s occurring in our society.  Fully 54% of the general population adults believe that the two principal functions of college are to gain skills/knowledge for a career and increase earnings power.  Fully 55% of the college leaders believe that the primary reasons for college are to learn to think critically and to become an informed citizen in a global society (although to be fair, 21% of the college establishment believes that earnings is a primary role as well).  Nevertheless, there is a massive disconnect between the product designed by the establishment and the product desired by the populace, yet the populace is being forced to purchase the product by their employer.  It’s akin to knowing that you need a minivan for two kids but have to pay for a convertible because your employer mandates it.  So what if it doesn’t work for you, buy it or else find a new job.

The notion of teaching critical thinking itself demonstrates that the college establishment is out of touch with the reality of today’s millenial generation.  While critical thinking is crucial to real success, let alone an appreciation of what life can offer, it’s become a lost art for many high school students and graduates.  Critical thinking requires a sustained effort at questioning and then evaluating the information to determine what’s actually happening.  It also involves a willingness to learn about the world around you and explore connections between seemingly disparate elements to get to the true reality, not just the virtual.  But the educational establishment is finding that the capacity to think critically amongst this generation is lacking; the article references Academically Adrift, which reported research showing that three full semesters of college had "…a "barely noticeable" impact on critical thinking, complex reasoning and writing skills…"(per Time).  As Jethro Gibbs would say, gee, ya think DiNozzo?  Starting decades ago, we parents began to permit our children an increasing amount of time on screens of one kind or another until today’s level at which the average teen spends more than six hours daily immersed in electronics.  MTV, Youtube, Facebook and other forms of social media distract them from the real world and the constant flow of imagery and gab lends nothing to the development of critical thought.  If you want an eye-opening view of the world at least partially inhabited by many high school and college-aged kids, try reading Texts From Last Night for a glimpse that’s simultaneously hilarious, mind-bending and ultimately depressing.  American society today is predicated upon avoiding any critical thought whatsoever, so good luck to the college establishment.

The second issue is the sea change in our attitudes towards the role of government since Reagan’s (in)famous comment that "government is the problem, not the solution."  That comment encapsulates the entire pendulum swing that’s moved towards privatization of many formerly public services, including the prison system and now education.   Even though a significant portion of the population was never able to attend college until the mid to latter twentieth century, our nation deemed education to be of value; we passed legislation that permitted the creation of colleges and universities – in the midst of the civil war – and then greased the skids to higher education for the masses with the passage of the GI Bill.  This belief in the practical and moral value of education led to increased spending through the "golden age" of the American economy, before the onset of these present structural changes.  But Reagan’s efforts, like those of his fans such as Limbaugh and Hannity, have kept proponents of the public sector on the defensive since then.  What is the value of government and what is the role of government?  Apart from defense – and with private security like Blackwater, even that – what do we need the government for when the private sector can handle things nicely?  And it’s been that way with higher education as states attempt desperately to balance their budgets.  With ongoing commentary about wasteful spending and the need for individuals to take care of themselves, the politicians have taken a goodly share of funds from education, leaving it to the students and families to make up the difference. 

Apart from decreasing funding for public education, the private sector has also moved into education in a major way with the creation of for-profit universities and on one level, that’s fine.  But why do they believe that they can make money at all when there are so many other institutions of higher learning?  If you look at the majority of the degree programs offered by the for-profits, they’ve read the cards well and moved nimbly into the skills areas for which they perceive demand, such as electronics, less technical health care training and of course, law enforcement certification programs.  There are two year programs galore that meet the population’s push for jobs-related education.  But one of the other reasons that the for-profits have gained ground has been the availability of relatively lower interest student loans through the past decade, courtesy of the federal government.  With flush times, the money was available for education and the for-profits – Phoenix, Kaplan, etc – readily sold their programs to an increasingly larger number of people.  But the rear-view mirror shows something else.  The completion rate of the for-profits lagged far behind that of the non-profit institutions, only 32% versus 55% for all institutions, as far more students leave with unfinished degrees than their non-profit counterparts.  Likewise, there have been significant fines for student recruitment practices as bonuses for admissions counselors were akin to the commissions for shady mortgage brokers who were paid for the number of loans that they were able to write.  So once again, the availability of cheap money coupled with minimal oversight led to a corrupted educational process that served few well.

The third issue is that more than a few parents have done as little critical thinking as their offspring.  Folks likewise bought into the past several decades of consumerist behavior and again, fueled by cheap money and a persistent barrage to consume, found themselves suddenly unprepared for the loss of living wage jobs for themselves, let alone their kids.  Hearing the data trumpeted again and again that the degree was the entry to the new "knowledge based economy" – honestly, what economy isn’t? – they simply panicked and pushed the kids through the institutions while piling on the debt for themselves and then, the kids.  It’s now apparent that the adults are unprepared for any meaningful retirement and are increasingly being pushed to no-benefit part-time employment; even when the opportunity existed to save for college, it didn’t happen and it’s now, for the larger part, too late.  

So how do we recreate or rejigger the system so that it again works?  There are obviously no easy, one-size fits all solutions.  The macro solutions are about reordering our priorities and determining where we place both them and our money.  What do we owe our youngsters and in turn, what are our expectations of them?  I do believe that another aspect is that if government is going to be involved in the higher education process, then it has to do more than provide loans which have proven to create moral hazards.  We’ve decided, in more truly dire circumstances, to support education and I see no reason that we shouldn’t reverse ourselves and put our backing there again. 

On a personal level then, parents have to step up in a non-financial sense.  The present reality is that traditional higher education is increasingly beyond the means of many American families.  But there should be no reason that a kid should say that she didn’t know what it would cost to repay the loans or that she couldn’t find meaningful employment with a Western Civ degree and it’s up to us as parents to impart that information.  We must pay greater attention to the world around us and plan and act accordingly.  We must pay greater attention to our children and help them ascertain their skills and talents in a meaningful fashion.  We must be willing to help teach them think critically, first and foremost by kicking their butts off of the electronics and back into the real world, even if it means that we lose more of our own increasingly rare free time. 



Helicoptering the Kids with School Software

Education is certainly different today from what I knew, and that’s especially in terms of the technology.  Elementary classrooms have Macs, the middle schoolers have classes in using programs like Word and interested high schoolers can learn how to use Flash animation; most of the local high school classrooms now use Smartboards that are frankly light years ahead of what I had.  But the schools – locally, the middle and high schools – also now have online programs that allow you to access all of Junior’s grades on a real time basis; at the middle school level, when the kids are literally the walking dead, there’s also a program to keep the parents up to date on the daily assignments.  But how often and to what extent should I utilize them?

The grades program is entitled Sapphire, a product of K12 Systems, an educational software firm.  The package is comprehensive for the using district; teachers can enter grades and make comments on the system; students and parents can check their grades as often as they wish and even the school nurse has a tracking module.  From the time that Eldest entered middle school – and she’s now a college freshman – the parents were advised to check Sapphire regularly in order to know how the kids are doing.  Depending upon the adminstrator or teacher, the advice was to do so daily.  Parents were likewise told at the outset of middle school to regularly keep tabs on the daily homework assignments via Moodle, a separate package upon which teacers can handle online quizzes and homework assignments, not to mention a readily available platform upon which to list the present assignments and projects due.  Depending upon the teacher and grade level, Moodle can even be used as a teaching platform for assignments in elementary school; I was surprised to find that Youngest was recently doing an extra credit quiz on Moodle over the past weekend.

There are certainly advantages to Moodle.  While I’m uncertain as to the package cost of the platform for the district, it certainly fits in well as a worthwhile investment despite the austerity that’s continuing to work through the local school systems.  There’s less need for the use of paper and the waste that especially hits the younger kids homework sheets are mangled or lost either enroute to or from the home.  It has likewise cut down on the cost of the planners that many schools have handed out to students at the onset of the new school year.  Our local district has given each student a planner for years but the quality and size of the planner has diminished considerably in the past two years as this line item has fallen to the budget necessities.  Parents can continue to check the provided planner, especially for the younger students, but Youngest’s teacher actually suggested that the parents provide a larger planner for use.  In the local district, Moodle is especially effective for the middle school parents as this is how the teachers post homework assignments and projects for the students; it’s at this age that the child’s ability to organize and think clearly is particularly hard hit.  By the time that the kids hit high school however, that aspect of Moodle is finished and it really is up to the student’s ability to keep and maintain a planner…and the parent’s ability to keep up with that as well.

But if our job is to raise them and prepare them to make their way in the world, does this technology ultimately help or hinder?  For all of the school system’s commentary about the need to keep tabs, what sank in for me came from a high school math teacher with teens of her own.  As a parent, she only touched base in the system herself but once every two weeks; how were the kids doing and what were there any issues that seemed to be cropping up, such as recurrent missed homework?  As we spoke, her thinking mirrored mine – and I felt like a terrible parent because I wasn’t checking every night – in that the kids weren’t really learning consequences if they weren’t allowed to screw up (as kids and teens can do in such combustibly magnificent fashion).  Gee, you got a D because the homework wasn’t turned in…there goes that particular privilege.  Likewise, the kids gain a sense that the ‘rents will also be there to backstop them and they don’t pay attention to the time management and organizational skills that life requires.  On a personal level, my own kids hate Sapphire and Moodle because it creates – for them – a sense that they have no independence and are forever tied to the apron.  In a small way for them, it retards their belief that they’re moving onwards to adulthood and still require constant supervision.

There’s no tried and true approach to the technology since no two children are alike.  In this household, one teen’s ability to organize and manage work meant that these were rarely utilized while a sibling’s lack of structure led to greater use (and bloodshed).  It’s taken time to reach a balance so that the child doesn’t feel as though independence is retarded while I’m comfortable with what’s going on with the schoolwork.  There have been repeated conversations about expectations and consequences and this child seems to understand that if the performance – matching the abilities – isn’t there, then privileges will disappear and consequences will occur.  Welcome to adulthood.


Becoming Good (Post-)Consumers

The conversation has nagged at me for a week now.  I was speaking with a mother who was also a high school English teacher and we chatted about teens and teaching.  As we spoke, she looked at me and commented that where we were failing was in preparing the kids for the practical aspects of life, such as keeping a checkbook and managing personal finance; she’s entirely correct in her assessment.  But she followed with another comment, that we aren’t preparing them to be good consumers.  It was shortly afterwards that the conversation fell victim to the press of dealing with our elementary school boys, but that particular comment has come back to me repeatedly since then. 

We aren’t preparing them to be good consumers?  On the contrary, we’ve raised them to be great consumers.  We’re doing a lousy job of being good post-consumers. 

I understand the point that she was making in the context of the talk about personal finance.  Our kids generally have a poor understanding of money and how to handle it, a function of society’s and parental inattention, as well as a purposeful effort to encourage consumerism.  How well do we live within our budget, save, keep track of our expenditures?  How do we maximize our money so that we’re being the most efficient and effective with the funds that we have available?  But the choice of the word consumer, while not meaning that that’s all that we are, is telling.  We should teach our children how to be consumers…

Shopping has become the manner of soothing our angst and alleviating our fears.  George W. Bush completely lost me in the aftermath of the 9/11 attacks when he stated that we shouldn’t let ourselves be held hostage to terror, but that we should go out and shop despite the fear.  Seriously?  When the going gets tough, the tough go shopping?  Some will say that it was just a poor choice of language, that shopping was a simple word denoting a wider spectrum of popular activities.  But I recall no language about overt public sacrifice, about what we needed as a nation to give up to pull together in common cause for what occurred and that is telling.  Where is the language about our collective values?

My sense is that we’ve fully given over to the material consumer programming pushed by the corporations, media and government to the exclusion of the non-material for life satisfaction.  To consider this, let’s look at QVC and religious affiliation as proxies for material and non-material satisfaction respectively.   QVC began as a fledgling entrepreneurial effort in 1986, two years after the start of HSN; in the earlier years, before and after it overtook the older HSN, it enjoyed growth of over 12%.  By the first decade of this century, growth had dropped to the single digits and in 2011, corporate revenues rose about 6.4% from 2010.  When you look at the QVC on-line age demographics, the largest segment is the boomer generation cohort of 55 – 64 years of age.  It’s followed by the 65 and over group and then by the second boomer cohort of 45 -54 year-olds.  The first and third age cohorts are the boomer generation in almost entirety, a generation nursed on the earliest precepts of consumerism, delivered via television and a truly flush economy.  The 65 and overs are perhaps the last wealthy generation that we’re going to be seeing, a group that does recall the lean years of the Great Depression and Second World War.  Don’t forget that the retirement assets of the boomers aren’t where they should be, particularly for the younger boomers.

On the other side of the ledger, take a look at religious affiliation, as recently viewed by Pew Research.  Remember that this is a proxy for non-material values and not necessarily a cry that you had better get thee hence to a church.  What’s notable in the survey is that the percentage of Americans who have no affiliation to any particular religion or denomination rose to fully 20% of the population; the group taking the biggest hit was the staid mainline denominations (Lutheran, Methodist and the like) cohort.  But the telling story is again within the age groupings.  About 37% of the respondents within the 30 – 49 year-old cohort had no religious affiliation; 35% of the respondents in the  18 – 29 year-old cluster had no affiliation either.  In comparing the two proxies, it would appear that the parents – the two largest QVC cohorts – were buying into the push for a consumer mentality and letting it overtake the other values historically handed down within the family.  It hasn’t been put to the statistical test, but it does make a certain sense.

The difficulty for our children however, is that the American consumer model is now dying.  Family incomes are dropping – by approximately $3000 since the start of the Obama Administration – and there’s a record number of Americans now receiving food stamps.  You can argue that the "improvement" since the financial crisis of 2008 is purely a result of repeated episodes of Quantitiative Easing with the Federal Reserve tossing cash into the system like confetti at Mardi Gras.  Many living wage jobs have been shipped overseas and will only come home with lower labor costs, meaning less money for our families, who are still working on the consumption model.  We’re simply now at the point at which we have to learn – and teach our children – that the easy personal financial choices of the past six decades are an end.  We’ve now officially entered the Post-Consumer era of American History, when the choices are harder and the opportunities fewer.  If you have any question about the validity of that statement, consider QVC once again.  In March of 2012, QVC inked an agreement with China’s national radio broadcasting group to begin a joint venture into tapping into China’s burgeoning middle class as occurred here.  The sights are likewise set on Brazil and India, two more members of the so-called BRIC group of nations, as QVC joins the rest of the corporate flock moving on to greener pastures after eating the local fields to the financial roots. 

There’s an awareness that our kids don’t have a handle on personal financial management, and that’s true.  But looking at that technical side – the use of credit and balancing a checkbook – is missing the greater point.  It’s akin to saying that we need to teach the youngsters better ways to manufacture buggy whips when every Tom, Dick and Harry is setting up an automobile manufacturing company.  It’s time to recognize where we are and move on accordingly.

Cognitive Dissonance and Shopping

If we’re going to slowly dig our way out of our collective economic hole, we’re going to have to make fundamental changes in our spending patterns, one of the principal aspects being a concentrated effort to buy local.  "Local" is a general geographic term, definable by the type of product being sold and it’s origin of manufacture.  But the more is better meme has become so entrenched in the national psyche that acting contrary to the meme can create significant internal conflict and cognitive dissonance.  It might seem easy, but breaking the consumer programming can be harder than it appears and will take a conscious effort; I experienced the discomfort with a recent purchase for an upcoming child’s birthday.

Middle is in his mid-teens and at a stage in which he’s now aware of his appearance.  That however, is butting against the fact that he’s probably not yet finished growing and I know that he’d like at least one more spurt so that he’s officially taller than his old man.  He recently asked for clothing for his upcoming birthday and the reality is that what he had last winter is going to be too short when he pulls it out for this winter.  Knowing that the article – he hasn’t had the birthday yet and I know that at least one of his friends reads this for some odd reason – isn’t going to be cheap, I began to shop accordingly.  My intent was to purchase the desired item, but one that was made in this country.  As I went shopping however, it became apparent that anything sold in any of the department stores was manufactured overseas, even if the headquarters were domiciled domestically.  Let’s be frank, the goal is to push money to the worker and not to the management.  The next step was to shift to the internet, via UPromise.  This isn’t a marketing shill, but if money is going to be spent online, I’d rather see a small segment come back to the college savings accounts.  What I learned however, was that the article is available from domestic manufacturers but at much – in this instance, twice as – greater prices.  Clothes shopping isn’t well-suited to the internet and with all of the major retail outlets pushing foreign-made brands, I suspect that there isn’t sufficient demand to allow the higher labor costs to be offset by higher volume sales. 

The upshot was the classic putting your money where your mouth is scenario.  There is a general amount that can be spent for the birthday and honestly, purchasing the domestic article would handily blow that budget out of the water.  As it is, the foreign made article available at the department store also pushes the budget but allows for the purchase of one or two smaller items.  As I stewed on the decision, the constantly reinforced more is better meme smacked me in the mental head and led to true cognitive dissonance:  birthday satisfaction or common good? 

With the end of the Second World War, there was a conscious decision by American business and the government to push much greater rates of consumer spending.  Both parties remembered how business spending collapsed during the Great Depression; that was replaced by the new Keynesian philosophy of pushing government spending, which Roosevelt embraced in his first two terms in office.  But government spending exploded during the Second World War, driving business investment and spending and allowing the American economy to again reach full employment.  The Axis’ defeat, and subsequent military downsizing, did leave the question of what would happen to the economy as government leaders believed in that quaint notion that the government’s budget had to be balanced.  The drop in defense spending did lead to a recession just as millions of American men came home…what – or who – would take it’s place?  Picture three players at a card table and two of them were working in tandem with a common strategy.  As the old axiom goes, if you’re at the table and don’t know who the sucker is, it’s you.  That third player was the American consumer, who wanted a better future after two decades of economic collapse and global war. 

Pent up demand was fed by the new instruments of television advertising and the soon-to-be created credit card and the horses were out of the gate.  If you don’t believe that the government was complicit with the business community, just look at all of the tax deductions available in the IRS tax code.  While everyone talks about the tax-deductibility of student debt and mortgage interest, most have forgotten that until its repeal in Reagan’s 1986 Income Tax Revision Plan, the average person could also deduct their credit card interest payments from their federal income taxes.  It was during the early 1980s that the government decided it needed the tax revenue more than the public policy goal of building a consumerist society and the deduction ended; the consumer mentality train was happily rolling onwards.

But while the train was speeding down the tracks at this time, foreign competition increased.  Remember how the Japanese were going to rule the world?  American corporations were losing market share and profit margin and corporations began to address at least the latter by shifting their production overseas.  Textiles left the south, shoes left New England and autos departed from Detroit.  If Americans wanted to purchase inexpensive consumer items, Walmart also began its historic and explosive growth, reimporting these departed items from far cheaper shores to an American consumer who didn’t realize that the economic ground was shifting beneath his sneaker-clad feet.  The effect was that the corporate sector switched the track beneath this speeding train, changing it to a line that was now running on an incline while the American consumer was slowly running out of fuel.  A railroad coal car might look full when it starts, but it eventually runs out of the coal. 

So that’s where we are.  The train is running out of fuel and the management is telling us to shovel for all our worth, but the fuel is depleting.  We’ve become conditioned to shoveling despite the growing realization that the only way to make the train keep running is to go more slowly and do a better job of managing what we have. 

Do I have to spend more than 96% of my disposable income in order to be happy?  Will that thingymabob make me more satisfied?   It’s a personal decision for each of us and I can now attest that breaking the mantra of six decades will require work and real readjustment of my priorities.  But it’s one that we have to begin making now.  The economic future facing our children truly is going to be more constrained than what they have now and if they don’t learn how to make more responsible choices from us while we’re not completely over the barrel, then they’ll be forced to contend with a cognitive dissonance that dwarves the discomfort which I faced. 

So what happened with the present for Middle’s upcoming birthday?  The result was a "victory" for the personal budget over common good as I went with the sale and got the price differential.  But the dissonance is still there.  I’m annoyed with myself for not recognizing the size of the price differences and accounting for it up front.  More importantly however, is the realization that there has to be purposeful conversation over the question of how much is enough? so that this little foray into globalization can have a different ending.

Calculating Real Price Rises:  The Effect of “Stealth” Inflation

What is the true effect of "stealth" inflation and to what extent does it hide the real effect of price increases to the consumer?

People who do the family shopping can tell when things have obviously gone up in price, a pound of hamburger being a classic example.  But there are instances when the shopper will look at something and suddenly wonder if the package – the container itself and not the design – is different.  The sense is occasionally akin to seeing something out of the corner of your eye and wondering whether that actually occurred or if you imagined it.  What is now referred to as "stealth" inflation is when a manufacturer alters the package size in order to minimize the price increases that are being  passed on to the consumer; if you know that too large a rise in price will cause the consumer to shift elsewhere, you simply pass through a smaller increase and quietly cut the package size so that less is being sold per package.  The net effect is a nominal price decrease – or no change – on the package but a slight increase in the package’s profit per unit (ounce, for example).

The real impact of stealth inflation is that the true price that people pay is understated by an unknown amount.  The sticker for the item sold might say $1, but in reality, the consumer has to pay $1.10 for the same amount than was purchased before. 

With questions about how the monetary policies of the Federal Reserve – Quantitative Easing and ZIRP – affect the economy and whether they would ultimately fuel inflation, I created the PracticalDad Price Index in the Fall of 2010.  The index consists of 47 separate items commonly available in the grocery store and each is for the less expensive store brand, unless there was no generic equivalent available at any of the three unrelated supermarkets.  The philosophic premise behind the basket is that it’s composed of common grocery items that would be purchased by a cost-conscious parent, trying to make ends meet on a simple monthly budget; it doesn’t presume to be the full quantity of food that would be purchased by a family of X members for a month but only the type of common item that a family would purchase. 

The key to running a price index is consistency.  Not only must you track the specific kind of item, but you also have to keep tabs on the packaging size as well.  Comparing one size can in a store to another size in a different store is an apples to oranges comparison and thus useless; in the case of the index’s ice cream entry, one store’s generic container was different from the others and I was forced to price on a unit (per quart) level.  The problem with pricing on a unit level is that it becomes impossible to account for stealth inflation and that was one of the factors that I wanted to track.  Over the two years, when I’ve noted instances of stealth inflation via packaging, I’ve adjusted the item’s price to what it would be for the original container size.  For example, all the grocery stores in November sold store brand coffee in 13 ounce containers.  When a store began to sell in 11 ounce containers, I converted the new price for the 11 ounce container back to an equivalent amount for the original 13 ounce container. 

Example:  Store A sold coffee at $3.50 in a 13 ounce container.  The next month, it sells coffee for $3.40 – a nominal price decrease – but the container is now 11 ounces.  Recalculating for the change [($3.40/11)*13] yields an equivalent price of $4.02 for a 13 ounce can, were the coffee sold in the old container size of 13 ounces.  Et Voila!  A nominal decline of 2.8% hides a real increase of 14.8%.

The first pricing occurred in November, 2010 with the full cost of the initial basket at $178.39, which became the index basis level of 100.  It wasn’t until the Spring of 2012 that I considered the effects of policies upon food alone and apart from non-food items; of the 47 items in the basket, ten are not food items per se, but grocery items such as soap, aluminum foil and ibuprofen.  I subsequently returned to the data and separated the ten non-food items from the remainder with the result that of the $178.39 spent on the entire basket, $89.14 was spent on food only.  This amount of $89.14 for November 2010 became the index basis level of 100 for food only.  Of the 47 items in the marketbasket, five items have undergone package decreases in the past two years, either in all of the stores (coffee, sugar and women’s pads) or in at least one of the stores (orange juice and kidney beans).  Each of the items is recalculated to account for the stealth inflation.

The results of the October 2012 – the 24th month of data collected – are presented below for both the Total Index and Food-only Index (November 2010 = 100).  The first column – "Actual" – is calculated for the Index and accounts for the impact of stealth inflation.  The second column – "Nominal" – lists the Index figures using the nominal prices on the grocery store shelves, without adjusting for the impact of stealth inflation. 

                           Actual          Nominal                   

Total Index         106.42         105.02           

Food-only           111.80         110.17           

In the Total Index, the nominal figure of 5.02 is a startling 28% [(6.42-5.02)/5.02] understatement while the Food-only Index is 16% understated [(11.8-10.17)/10.17].  In fairness, the massive Total-Index understatement can be statistically attributed to the oversized effect of the price activity of one item – specifically women’s pads – in relation to the total dollar value of the basket.  The pads have undergone large price declines in both nominal and real terms over the two year period and this has produced an outsized effect upon the basket.  But when this item is removed along with the remainder of the non-food products to leave only foodstuffs however, there is still a significant 16% differential between the nominal and the stealth-adjusted figures.

The upshot is this.  A great deal, both in terms of Fed policy and actual government spending, is predicated upon the possession and use of accurate information.  If the information is badly misrepresented or skewed, then the policy actions will be correspondingly skewed.  The Fed and the government presently state that inflation, the core-CPI, is minimal and are pursuing policies intended to provoke an upshot of inflation.  But is the price information that they’re using accurate or are things percolating along even more than is reported?

PracticalDad Price Index:  Two Years and Counting

The PracticalDad market basket of 47 grocery store items was taken and calculated today, with two years of consistent pricing now under the belt.  There’s been much speculation about what will occur to prices once the Federal Reserve’s next round of Quantitative Easing – the third to date – works through the economy and while everyone has an opinion, the data from the basket shows that while the Total PracticalDad Marketbasket Index decreased by more than a full basis point to 106.42 (from 107.50), the Food-only segment of the basket rose slightly from September’s 111.67 to 111.80; this is an increase in the food-only segment of 11.8% since the index’s inception in November 2010.

A grocery market basket of 47 items – of which ten of those are not edible food products – is admittedly a tiny sample of the thousands of items available in the standard grocery store.  But having been the family shopper and cook for years, I believe that it’s an accurate microcosm of the typical family’s essential shopping list, stripped down to what a typical family trying to make ends meet would purchase.  Given the uncertainty over the monetary policy actions, especially as it pertains to food, I’ve begun to track the spread between the two index values with the thought that it would be, while only a datapoint, indicative of the impact of easy money upon foodstuffs.  After all, we can cut back on non-essentials such as books and trips, but our ability to cut back on basic foodstuffs is limited.  Unless of course, we plan to starve.

Month/Year               Total Index               Food-only Index               Spread

11/10                         100                          100                                   0

8/12                           106.68                     110.88                              4.20

9/12                           107.50                     111.67                              4.17

10/12                         106.42                     111.80                              5.38

One of the best comments that I’ve ever read about inflation in light of present monetary policy was posted by "Dryfly", a commenter on www.calculatedriskblog.com.  Several years ago, he wrote that we’ll probably see deflation in what we want and inflation in what we need; declining incomes will force us to cut back on non-essential purchases while the exceptionally loose monetary policies will force prices upwards on our essentials, especially food.  The non-essential cutbacks will cause manufacturers to keep a lid on their pricing, while the food and commodity producers will be able to – within reason – pass these through to the consumer.  It might not be perfect, but I think that the spread will serve as a reasonable indicator of the effect of monetary policy upon prices, especially the essentials versus the non-essentials. 

Expect to see the spread each month as we move forward.