Monday, August 01, 2016

Inflation Hidden in Plain Sight

Can we be honest and say that many of the reductions in value, quantity and quality are actually instances of fraud?
Yesterday, I showed how Consumer Prices Have Soared 160% Since 2001 for everything from burritos to healthcare. This enormous loss of purchasing power is not reflected in the official measure of inflation, which claims inflation is subdued (1% or so annually).
But price inflation doesn't necessarily reflect all the inflation that's hidden in plain sight in smaller quantities and declining quality. We've all observed prices of consumer items remaining the same while the amount of the product we receive for our money is less than it was a few years ago.
While a reduction in product quantities can be easily calculated, reductions in quality are harder to discern and calculate.
Consider the quantity and quality of the paint being applied to kitchen appliances. Although I can't quantify this, I've noticed appliances such as ranges and refrigerators are now prone to rust along the bottom edges in a few years because the manufacturers no longer apply much paint to surfaces and edges that are not visible, for example the underside of the steel exteriors.
This sort of rust was unknown in older appliances, or would only be visible after decades of service, not a few years.
I also notice that the paint is now so thin that scrubbing will in some cases remove the top layer of paint.
These reductions in quality may be the result of corporate cost-cutting or planned obsolescence or both. The net result is a form of inflation/loss of purchasing power as the price does not reflect smaller quantities and reduced quality/ service life.
As a result, many hedonic adjustments to inflation that are supposed to reflect better quality or productivity characteristics are bogus. A laptop computer may have more memory and processing power for the same price as previous models, but who measures the reduction in service life or the stagnation of productivity?
The reality is that most of us don't even use the full capacity of the processors or memory, and the industry's planned obsolescence has reduced the service life of new PCs. My 31-Year Old Apple Mac Started Up Fine After 15 Years in a Box (February 28, 2015)
Big Pharma has been busy jacking up the cost of medications that are off-patent by 500% or more. Meds that were a few dollars are being increased by 1,000% because, well, Big Pharma can raise prices without delivering any additional value.
Can we be honest and say that many of the reductions in value, quantity and quality are actually instances of fraud?
Whether we attribute inflation in plain sight from reductions in value, quantity and quality to cost-cutting, planned obsolescence or fraud, the reality is that these declines in purchasing power and value (i.e. inflation) are real but difficult to calculate and track.
That is why inflation in plain sight is so attractive to corporations and institutions.

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