Monday, August 2, 2021

It's 1980 All Over Again

Do you remember the early 1980s? I do. It was an odd time. Right before Reagan's policies kicked in and saved the United States, we hit a period of inflation that was both strange and unprecedented. Almost overnight, everything doubled in expense. Seemingly without anyone noticing, everything changed and a new normal appeared and everybody acted like nothing had happened. I think we're going through that again.

Normal inflation is a couple percentage points a year. What was $1 this year becomes $1.03 next year and $1.08 the next. Ho hum. In a bad year, $1 become $1.25 and people complain. In the 1930s in Germany, inflation was insane and 1 deutschmark became 10,000 overnight... and the system collapsed. But in the 1970s, something stranger happened. Overnight, $1 became $3 and no one noticed. The price of a cheap car went from $3,000 to $15,000 within months. Middle class houses went from $80,000 to $200,000. Food items went from $0.10 to $0.99. And then inflation stopped. Even stranger, nobody noticed. Everyone just took it as the new normal and moved on with the new numbers as if these had always been the prices for things.

Part of the reason no one cared was that wages went up with the change in prices. In fact, wages doubled from the late 1970s to the mid-1980s and Reagan created massive numbers of new high-paying jobs (like defense jobs) which took people to new income brackets. Still, it was funny not to hear people in shock about what X cost only a few months ago. I think the effect ultimately was what you see when people come into money: they stop caring what things cost. With everyone suddenly richer, they didn't care that everything was no more expensive.

I think we're in that kind of moment again. Housing prices have doubled in the past half-decade with a 25% rise last year alone. Food has more than doubled. Everything is getting crazy expensive. How expensive? Consider the Big Max index, my favorite indicator of inflation between countries. The Big Mac index assumes that McDonalds does three things: (1) sources locally, (2) obtains goods and supplies from a broad cross-section of society, and (3) drives vicious bargains. Thus, what it pays is a good indication of what living costs locally. And what it charges between countries is a great comparison of the actual cost of things. Thus, you can find out what a currency is really worth by comparing the prices of Big Macs in the different countries.

This works just as well looking backwards in time as it does across countries. The cost of a Big Mac meal was around $7 just 5-7 years ago. Now it's $11. Expect it to be $12-13 by the end of the year. If the $15 minimum wage hits, expect McDonalds to add another $1-$3 surchage. That's basically a doubling. And don't forget about shrinkflation. The media has finally discovered this, that products are getting smaller but being kept in the same packages even as prices rise. That means inflation is even worse than the dollars indicate. (As an aside, I'm pretty sure McDonalds has cut 1-3 ounces out of their drinks, which works out to tens of millions of ounces saved a day.)

People are noticing the inflation and the shrinkflation (though less so) but no one seems to realize the scope. The government is taking about 6%. Most people talk about 1-2 items in isolaton. But few have put it all together. The entire US market just jumped up double what it had been.

Now comes the catch... salaries have not kept up.

Liberals have been pushing the $15 minimum wage, but that only affects a tiny number of people and no one above them is getting pushed up equally. Lots of good liberals are quite pissed to find out that their teenagers are suddenly making nearly as much as they are after decades of work. People I know at big established firms are getting the usual 3-4%. Social Security might get as high as 6%.

That 6% is a catch too. Because the government says there is 6% inflation, few companies will give more than that as a cost of living raise, even if the real number is 200%. This is bad. Why?

First, it means that workers get screwed. Your real wages are about to get crushed because your raise will never keep up with inflation. Sure, your company will be more competitive because you just got cheaper, but you are the one paying for their luck.

Secondly, this means that things like investments and loans are all priced wrong and if you end up on the wrong side, you will get destroyed. If you own a long term investment, it probably just lost a lot of value.

Third, it means everyone's standard of living is about to drop as things become massively more expensive. Middle and lower middle class wages will not be able to buy homes.

Fourth, it means retirees are going to get crushed.

Fifth, it means we all need to rethink the cost of things. It means we need to adjust mentally to what things should cost, what is too much, and what is not too much. It means not knowing what you can really afford at the moment. It makes budgetting super hard -- it's going to be a bit like going to a foreign country where the prices seem all right until you realize that the currency difference make them all kind of screwy and you don't really know if you're being raped or not.



Stacy said...

Economics really isn't something I'm well versed in, but even so, if one doesn't have one's head up one's butt or in the clouds or wherever folks are putting them these days, it's not that hard to figure out. My husband and I have been saying basically these same things for a good while. All the "free" stuff has a cost. Someone has to pay for it. At 57 and 60, we are not feeling particularly optimistic about our "golden" years.

ArgentGale said...

That was the time I was born in so I missed that crap while it was happening but whatever entities run my life (I'm thinking Loki, Tzeentch, and Nyarlathotep) seem to think I needed a first-hand view of it unfortunately. I'd feel easier about this if he had a Reagan working to fix the problems instead of a completely insane Democratic Party, its dementia-addled puppet, and its cronies trying to grab as much power and wealth as they can. And opposing them is perhaps the most incompetent, self-destructive, bunch of fools to ever blunder their way through the political and cultural scenes. Lovely. Can we bring on SMOD already and have Cthulhu clean up the survivors? Or Cthulhu can come first and let SMOD clean up the rest. I'm not picky at this point. Either one's preferable to what we've got coming.

Rustbelt said...

AG, why waste your time on those farm team minions when we can just read from the Gozerian Codex, summon Gozer, and this time pick a decent destructor form for him with which to destroy the known world? Something truly terrible and about having a Godzilla-sized, vampirish Ruth Bader Ginsburg appear and destroy us?
Oh, and forget SMOD. With his work ethic, he's probably a Teamster.
Sorry I forgot to answer your remark from a few articles back. Those Tibetan monasteries- where you become Batman or the Shadow- sound tempting, but I prefer the type where you can be Ace Ventura-esque weird and just forget the outside world. (Frankly, what kept me out was the inevitable ramen noodle-only diet.)

Andrew, sorry I didn't comment on your last article. But I was wondering: do you think that every future showing of Major League is likely to have all references to the Indians- names, colors, Chief Wahoo- blurred out like historic WWF footage was for a while?
I mean, last month I was watching Comedy Central and a warning preceded a film alerting the viewers that the movie to come contained outdated depictions of Native Americans that some easily sensitive viewers may find offensive. The movie- no joke- was 'Back to the Future III.' (Simultaneously, I changed the channel, found another film, and wondered if a similar warning was warranted for 'The Naked Gun' due its use of the vile, evil, problematic word, 'secretary.')

Also in sports...I could ramble on about the impending death of the Big 12...or how Jimmy Harbaugh, fresh off cowering out of last year's edition of The Game with COVID as a convenient cover story, is finally taking his job seriously for the first time in 7 years..
But the real news- well, what I consider news- is from a side article I saw that indicated the Cleveland [BASEBALL TEAM] may be in for more embarrassment. It seems a roller derby team in Ohio already has 'Cleveland Guardians' copyrighted and this could force another name change.
Now, before you say that an MLB team will not be denied, consider this: from what I've heard, the owner of the NHL's Las Vegas Golden Knights- himself a West Point grad- originally wanted to call the team the Black Knights, in honor of his alma mater. West Point and the DOD were fine with it, but the plan was apparently blocked in court by a high school that already had a copyright/trademark to the name. Hence, Golden Knights.
With that in mind, it sounds like anything's possible.

AndrewPrice said...

Stacy, I am worried too, actually. Anyone on fixed incomes or who plans to be on fixed incomes (or whose company doesn't account for real inflation) is (being) going to be hit hard. It's shocking to me too that no one in officialdom seems to see this either. My guess is that they see this as a way to become more competitive.

AndrewPrice said...

Daniel, The 1980s were a great time to be alive. (The 1970s were fun too). There wasn't any angst, people didn't hate each other, and everyone was optimistic.

AndrewPrice said...

Rustbelt, Over time, movies like Major League will vanish. We won't flat out ban them or recut them at the British do to remove things like smoking, but our censors tend to just let things disappear when they don't like them. Think "Song of the South," which isn't banned but has basically been closeted.

Others that will vanish include "Gone With The Wind" some westerns, Fatty Arbuckle... er, Kevin Spacey films, and the such.

ArgentGale said...

Blame my old age and fading memories of what little Ghostbusters I've seen for my lack of imagination there, Rustbelt. =P Good point on those kind of monasteries, too, I suppose I just wanted something to show for the isolation! Andrew, unfortunately my memories of that decade have pretty much faded on account of me being a little kid, which is probably why the most I could manage on Kevin Smith's new botched He-Man was an eyeroll and a "Meh, back to gaming." Of course even that's all but gone into the sewers these days, too... What a time to be alive, huh?

AndrewPrice said...

Daniel, I remember it fondly. What I remember most was how energized and positive everyone was. People felt like they could achieve anything. People didn't whine and get offended by everything. It was a time of dreams. Today, it's weirdos cringing in their mother's basements.

Tennessee Jed said...

First time back in a while

AndrewPrice said...

I just saw today that official unemployment is 5.9%, which means real inflation is more like 10%.

Also, used cars and gas are up 42% year on year. That's what I'm taking about with the huge jumps. Houses are up 25% year on year after going up about 12% a year for the past 5-7 years.

It's a new world folks. Bargain, plan accordingly.

AndrewPrice said...

Hi Jed! Welcome back.

I'll post a new article tonight!

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