Inflation's Silver Lining

Or how poverty finally taught me how to get rich

On my wife’s suggestion, I shopped at Aldi the other day.  The prices were as amazingly great as she said they’d be. We’re talking half-off the prices at our local high-end grocery and 25% off mainstream stores like Kroger.

Six months ago I would not have noticed because, guy-like, I never looked at prices. These days, with inflation raging, I don’t set foot in a store without my reading glasses

We are not alone. Bargain hunting is all the rage. Aldi was packed. Susan pointed out to me that sales at Real, Real, which sells used luxury items, are booming. (The stock market hasn’t noticed yet, so maybe you should notice the stock.) The Wall Street Journal says even mainstream retailers are responding to inflation by cutting prices on selected items—from canned tuna to entry level furniture—to keep their suffering customer base loyal even at a loss.

My father’s prodigal son

All my life I have spent too much money too carelessly.  The more I made the more prodigal I became. White-haired, I am finally learning thrift. And what’s good for me is good for the country.

Americans spend too much money. Way, way, too much money. It’s bad for them and it is bad for America.

I know what you are going to say, because I said it for a long time. “How is that on us? Prices keep going up, what else can we do?” Or “my parents (grandparents?) raised a family on one income. We barely get by on two incomes. What happened to the American Dream?”

I feel your pain, but the data don’t support our feelings. What the data do show, according to  SuperAbundance the great new book by Gale Pooley and Marion Tupy,  is a path to financial independence for middle-class Americans. The authors show Americans today are hugely richer than our parents or grandparents. If we don’t take advantage of that, it is on us.

Curb your unenthusiasm

Hold your outrage till I finish. Pooley and Tupy exhaustively document--across 200 years and around the globe--the dramatic decline in the only true prices: “time prices.” A time price is the amount of a worker’s time it costs to purchase an item. Time prices are figured by dividing nominal money prices by nominal wages. That yields a time-price in hours and minutes. It also eliminates the need for dubious inflation adjustments because both the numerator and the denominator are nominal.

One of the authors’ favorite examples—which my friend George Gilder likes to quote—is Thanksgiving dinner.  If we use only the standard inflation adjustments, in the 35 years from 1986 through 2021, the price of a typical Thanksgiving dinner (16-pound turkey and all the fixings, fillings, vegetables, drinks, and deserts) appears to have remained flat. That’s pretty disappointing considering the trillions invested in farm technology and machinery over that period.

Disappointing—and suspicious.  Was all that investment for naught? How is that possible? One would expect wonderful increases in yield, a SuperAbundance that should have reduced prices.

Measured by the time it took to buy that dinner, a SuperAbundance is exactly what we got.  Measured in work-hours the price of a Thanksgiving dinner has dropped 29.7 percent for unskilled workers and 31.5 percent for a blue-collar worker since 1986

Frank Perdue must be so ticked off

For the actual, real-life workers the news is even better. “Unskilled” workers typically rise to “blue-collar” status within a lot less than 35 years. For unskilled worker who ascended to blue collar status during that period a Thanksgiving dinner that cost 32.9 minutes to earn in 1986 cost only 9.2 minutes in 2021. The price for that worker has dropped more than 70 percent.

Less than 10 minutes for a 16 lb. turkey, plus all the other stuff.  Frank Perdue must be spinning in his grave!

Going back to 1850, Pooley and Tupy demonstrate this phenomenon applies across the entire economy and the entire globe. What it took our grandparents days of labor to buy takes us hours, where our parents spent hours, we spend minutes. 

Even better, the decline in time prices disproportionately favors poor people and countries. As the authors show, the time-price to acquire enough rice for a day in India has dropped from about seven hours in 1960 to less than an hour today. Meanwhile the time price of a comparable supply of wheat in Indiana has dropped from an hour to 7.5 minutes. The impoverished Indian has gained six hours and two minutes to do other things—like make money--while the buyer of Indiana wheat gained only some 52 minutes. 

If we don’t always see the fall in time prices it’s usually because what was on offer a few decades ago has changed while the label has remained the same. Bill Bonner has pointed out that the time price of Ford’s most popular truck, the F150, has risen a fair bit over the decades. That’s true. But the current model packs more power, uses less gas, is safer and more comfortable, and will keep going for at least twice as many miles as the old one.  The total time-price of ownership over the useful life of the truck has dropped a lot.

A pink carnation and a pick-up truck

That Ford 150 actually shows how all of us can all build our wealth by keeping time prices top-of-mind. We may well experience ourselves as financially distressed if, for instance, we don’t take advantage of our cars lasting for twice as many miles as they used to. Keep the car longer, get richer. (Nowadays carnations last longer too because Costco is better than your florist.)

A clearer example is food, where we so often trade time against money by buying convenience foods.  

Chili made from canned beans appears an economical choice for dinner. But it’s six times as expensive as chili made from dried beans. Is the effort worth it?  Does the extra cost buy enough time to justify the expense? I did an experiment to find out.

Into the lab…

I rinsed some beans and put them to soak overnight (3 minutes). Next day I drained them and set them in a pot to boil (2 minutes). After they came to a boil (60 scattered seconds looking up from my work) I reduced the heat to simmer, covered them, and set a timer (2 minutes) and went back to what I loosely describe as work—e.g. writing this newsletter. The timer went off.  I stopped typing for 30 seconds to turn off the beans, ready to be made into chili. (By Susan, not me. Her chili is an object of lust.)

Boiling my own took less than eight minutes. Opening six cans, rinsing, and draining takes about three minutes, yielding a five minute spread between canned and fresh. (You can’t properly rinse six cans of beans in the colander all at once without crushing some. I tried.) Clean-up is the same because the bean pot becomes the chili pot.  

At that five minute spread and a median wage of 49 cents a minute most middle-class Americans would come out ahead on the deal.  

The moral: time prices reveal we have so much money that just a bit of thrift could make most of us financially secure.

Ten percent of all you make is yours to keep

Years ago, I edited a book by the great Mark Skousen called Investing in One Lesson.  In the crucial chapter, “Ten Percent of All you Make is Yours to Keep”, Mark explained that if American families saved just 10 percent of their income and invested it in the US stock market most of us would soon pile up enough money to:

(a) deal with crises like job loss and

(b) retire comfortably on our own with Social Security being merely a modest supplement.

Now that I am finally supporting Susan on thrift, we expect to cut our spending by a lot more than ten percent. And since inflation will very likely be transitory almost all that savings will hit the bottom line.

Thank you, clueless Dems, lazy Republicans, and terrible tyrants for waking us up!

Hey, if you have any other thrift suggestions wherein we can save money without squandering time you should…