Shrinkflation Is Not A Joke, It's Inflation

"Remembering" (AI-e collaboration)

If I am a baker and the cost of flour goes up, and the taxes on my bakery building go up, and the wages of my employees go up, it seems apparent that my prices would have to go up. 

If I own a cookie factory, and my taxes go up plus my costs for raw materials, and wages go up to keep my employees, I have very few options in order to break even. Option One: raise my prices. Option Two: reduce the number of cookies in the package, or... Option Three: reduce the size of the cookies in the package. This latter is what the president mockingly calls Shrinkflation.

President Biden seems to get a kick out of deriding businesses that make their products smaller. Does he not understand that it's GOVERNMENT POLICIES that are causing this? A business has to make a profit in order to pay for the cost of doing business. When businesses fail to make money, they eventually go out of business. Why this is not obvious to most people is a mystery to me. 

So the president brags about his policies making life better while things keep getting worse and people living in the trenches, down on the streets, know it. 

President Biden wants to have the FDA punish companies that reduce the number of chips in a bag or the size of cookies in a package. Which means what? The prices for these products will have to go up. 

When I go through the grocery story lines and buy four items for twenty or twenty-five dollars, I see people fork over $200 for a couple bags of groceries. I'm not sure how they can do it. Eventually it will be $200 for one bag of groceries. In short, this is another form of "shrinkflation" in which grocery stories give us fewer goods for the same amount of cash. Should we punish the grocers also?

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Worth Reading (if able): Biden's Partisan State of Disunion

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As Ronald Reagan famously observed, the nine most terrifying words in the English language are, "I'm from the government and I'm here to help." 

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Is Inflation Getting Better or Worse?

My father-in-law did an amazing job of downsizing. Over a period of years he moved from a farmhouse with two barns, greenhouse and five or so other out-buildings to a two-room apartment. Much of what he was unable to get rid of through rummage sales became firewood. Some of the items, primarily those with sentimental value, ended up in our garage or basement. Included in these things was a stack of old Life magazines from the 19940s and 50s. 

Looking through these magazines was both entertaining and educational. This was a slice of our history. The photos and stories featured the events that shaped our generation. The weekly magazine had influence.

They also had advertising, aimed at both selling products and  to some extent also shaping behavior. One of the ads that made an impression on me featured an executive seated behind a desk with a big smile on his face, feet up on top of the desk as he leaned back in his chair. The reason he was happy was because he was retiring. Not only that, but he would be getting a Social Security check for $147 a month for the rest of his life.

That was the headline. "For the rest of my life I will be getting $147 a month!"

This image came to mind as I read this week's announcement regarding consumer prices and the Consumer Price Index (CPI). According to the powers that be, CPI inflation has dropped to 3.1%

And yet, even though the CPI this month is down, there are certainly a lot of things that seem disconcerting by way of contrast. When you look at the inflation rates on this list of basic necessities, does it make you wonder where thy pull their numbers from?

1. Car Insurance Inflation: 19.2% 2. Transportation Inflation: 10.1% 3. Car Repair Inflation: 8.5% 4. Rent Inflation: 6.9% 5. Homeowner Inflation: 6.7% 6. Food Away From Home Inflation: 5.3% 7. Electricity Inflation: 3.4%

A lot of people seem to think that when the CPI index drops, inflation is down. In reality, prices are still rising and affordability for the have nots is getting worse.

Because of the rising costs of raw materials, the cost for new housing has also risen. As a result, supply is not keeping up with demand. (Which makes me curious regarding where those 11 million unauthorized immigrants are living these days.)

That guy in the Life magazine ad is smiling, but if he lives a couple decades after retiring he won't see that $147-a-month check won't do all that much. Nowadays, it wouldn't cover your food, let alone rent, car, gas, car insurance, utilities and all the rest.

Alas, let the good times roll.

The Disaster No One Talks About: Venezuela

Refugees in Bogata make crafts out of 
worthless Venezuelan cash.

Trendy economists say the US can spend much more, and pay for it by printing more money. This won’t cause further inflation, say "modern monetary theorists."

But one country recently tried “printing more money." Here's what happened:

A lot of us either never knew or have forgotten that Venezuela was the wealthiest nation in South America. Petroleum revenue rewarded it with wealth. It was a socialist government that became a darling of the Left. Hugo Chavez (president from 1999-2013) spent big bucks on social programs. He even sent money to the U.S. to help provide heating oil for poor Americans.

A combination of political corruption and hyperinflation after his departure sent the country's economy into a tailspin. In 2014 inflation stood at 69%. By 2015, inflation was now 181%. That means what used to be a dollar in January 2014 was less than 30 cents by the end of two years. Inflation was up 800% by end of 2016 and 4,000% in 2017, followed by 1.7 million percent in 2018.

According to details at Wikipedia "By early April 2019, the 18,000 Bs.S monthly minimum wage was the equivalent of $5.50 – less than the price of a McDonald's Happy Meal. Ecoanalitica estimated that prices jumped by 465% in the first two and a half months of 2019. In March 2019, the Wall Street Journal stated that the 'main cause of hyperinflation is the central bank printing money to fund gaping public spending deficits,' reporting that a teacher could only buy a dozen eggs and two pounds of cheese with a month's wages."

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Over the past 30 years my brother has taken 28 trips to South America to teach counseling to church leaders in various countries. When the Venezuelan economy imploded, as many as six million citizens fled their homeland, flooding into neighboring South American countries. My brother saw first-hand the challenges of this refugee crisis, which has received little coverage in our media here. Only Saudi Arabia has produced more refugees than Venezuela since 2000. 

If the war in Ukraine continues, refugee numbers will likely surpass Venezuela in magnitude, though it is a crisis of a different character. 

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Please note, this is not an appeal to eliminate social programs. Rather it is an appeal for our government to embrace basic fiscal responsibility. The motive behind much government largesse seems more about winning voters than doing what is best for these voters and the future of the country. 

The second lesson in this story--the first being that we need to cringe when politicians say they want to solve our problems by printing more money--is to note how quickly the strongest economy became a disaster.

America is not immune from stupidity or corruption. Let's not say "It can't happen here." Rather, let's say, "It MUST NOT happen here."

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Read more about Hyperinflation in Venezuela.

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The Tragic Implosion of Venezuela

Source: DataIsBeautiful.com  Click to enlarge.

In 1950 Venezuela was the 4th wealthiest nation per capita in the world and the richest nation in South America. Can you believe it? Today millions have fled the country into South American neighbors with massive increases in crime and cultural challenges.

The country's difficulties didn't happen overnight, but when nations fail they fall hard. This year the inflation rate increased 10,000,000%, which is a number that doesn't even make sense.

What's going on? Venezuela sits on the richest oil reserves in the world. Well, it's another case of the richest getting richer while the food lines grow longer. Children faint in school from hunger. The murder rate has skyrocketed.

Photo by Richard Jaimes
on Unsplash

According to a 2018 article in Foreign Affairs titled Venezuela's Suicide, "Its schools lie half deserted. The health system has been devastated by decades of underinvestment, corruption, and neglect; long-vanquished diseases, such as malaria and measles, have returned. Only a tiny elite can afford enough to eat. An epidemic of violence has made it one of the most murderous countries in the world. It is the source of Latin America’s largest refugee migration in a generation, with millions of citizens fleeing in the last few years alone."

A year later and it seems everyone with means to do so has fled, though many from the educated and professional classes have remained and continue to protest their government. As of last week more than 16,400 protests have taken place this year alone.

According to a May New York Times article Venezuela's collapse is the worst ever that has not been caused by war.

Pray for the good people of Venezuela.

Related Links
Venezuela on the Brink
Venezuela's Suicide: Lessons from a Failed State
U.N. News: Misery for Venezuelans continues