Tales & Trails of a Traveling Wiseguy

Yesterday I shared a graphic I adapted from CNN.com showing the US inflation rate over the last 65 years. I remarked that there were a lot of narratives I could relate about what that chart represents. That's a hallmark of great charts, BTW: they convey a lot of possible stories at the same time.



One thing that happens with a chart like this is your eye being drawn to the places where the graph is the highest— those two peaks in 1973 and 1980. It's that highest peak, around 1980 when inflation hit 15% annually, that I want to write a bit about today.

I was a child at the time but I do remember that era. I was getting old enough to learn things about money, prices, etc., particularly because I was precocious and way ahead of my age group in math. I remember seeing prices rising noticeably year-over-year. Things like the Sears catalog made it easy to compare; I could have both the current catalog and last year's open at the same time, and point right to how much prices had gone up.

Who Inflation's Good For

One thing I also remember about that time was that my parents weren't too bothered about inflation. Years later I recognized that was because they were debtors.

Inflation is a huge threat to savings. When the inflation rate is, say, 15% (like it was that one year) if you're not earning 15% on your savings, you're losing money. And most people weren't earning 15%. Middle class Americans back then kept their savings, if they had any, in ordinary bank accounts. Interest rates paid on savings were several points below the inflation rate. Getting paid 8% interest may have seemed like great money— it made unwise savers feel they were getting rich— but when prices were increasing 10%, 12%, 15% annually the value of their savings was being eroded.

For people who owe money, on the other hand, inflation can be helpful. My parents owned a house with a mortgage. The rate was fixed at 8%. With everything else growing at 10% a year the relative price of that mortgage got smaller and smaller.

New home loans had rates of 18+%. It was a good time to own a house and not need to move. ...My parents were looking to move, BTW. They needed a bigger house for their growing family. But the cost of borrowing new money at 18% or higher made it unaffordable.

My parents owed money on credit cards, too. For a while inflation helped shrink the relative size of their old debt. But then the credit card issuers convinced the government to remove limits on interest rates. In particular the state of South Dakota removed its usury laws in 1981, and several major credit card issuing banks moved there (article in The Atlantic, 10 Jul 2013). Other states followed suit. Within a few years credit card interest rates shot up from an average of about 12% to almost 20%.

BTW, you notice how even today most credit cards have standard rates of 18% or higher even over the past 30 years when inflation has often averaged just 2-3%? Thank the "freedom" granted by states removing laws against usury and abusive lending in the 1980s.

Amazon announced last Friday the cost of Amazon Prime is going up. Annual subscriptions increase by $20, to $139/year. Monthly subscriptions increase by $2/month, to $14.99. Ah, inflation!¹

In the news coverage about this price increase I saw one clickbait-y headline about "How people can save $100s or even $1000s with this Prime change!" I was curious if the article would reveal some not-widely-known or new benefit of Prime membership, or— more likely— would be a snarky way of saying, "Shop elsewhere." ...It was a snarky way of saying, "Shop elsewhere."

Coincidentally I had just seen this effect myself a week or two earlier: Amazon, long known for being the cheaper alternative to traditional retailers, is not always the cheapest anymore!

In the situation 2 weeks ago I was shopping for some OTC health supplies. Only one vendor on Amazon offered what I needed— which itself was weird, because there used to be several— and they stated delivery would take 4-5 weeks. So much for free 2-day delivery with Prime, huh? 🙄 I decided to check at Walmart.com and not only found the same item available with delivery promised in just a few days but also priced 10% cheaper!

Subsequently I've found other items, including haircare products and household items, on better deals at Walmart.com. Not only are they 10-20% cheaper at Walmart.com but they're in stock when Amazon's sellers are saying it will take weeks for delivery. Amazon used to be the only place I'd check for online shopping for a wide variety of things. Not anymore.


1. It's actually not inflation, per se, but rather Amazon's need to show growth to its investors. Subscriber numbers are flattening out, so to show revenue growth Amazon— like a bunch of other big-name online companies recently— is increasing membership price.

Media content, like games and movies, is so cheap nowadays. I was reminded of that today in a discussion elsenet where someone brought up the days of VCRs and VHS tapes. Remember those days, the mid 1980s through mid 1990s?

Before VCRs became a standard fixture in households by the mid 1980s, game consoles like the Atari 2600 took the country by storm. I remember it was about 1982 when it seemed like everyone I knew had one. Everyone except my family, that is. We were poor-ish. The $125 or so the console cost in 1982 was a big ask for my parents. To put that in perspective, it's about $350 today according to inflation indexes.

Okay, so console prices have kept pace with inflation. Buying a new console today will set you back a few hundred. But there's a concept in consumer goods from decades ago called The Razor and Razorblade Problem. Consumers tend to focus on the cost of a razor as a major factor in choosing which item to buy or whether to buy one at all, but really in the long run they're going to be spending way more money on razor blades than the razor itself. A game console is the razor, and its games are the razor blades.

Check out the math on this. Major title games for that Atari 2600 back in 1982 were priced at $50 each. That's almost $140 today.

Can you imagine paying $140 for a game? It would be an outrage. And today's games are not only way cheaper (adjusted for inflation) but they're also vastly richer and more immersive than the primitive graphics and repetitive game play we considered state-of-the-art in 1982.

Now let's talk about movies on VHS tapes. Yeah, they required VCRs to play, and like pretty much all consumer electronics VCRs were extremely expensive at first but quickly came down in price to the point that virtually every working class or higher household had one. Even my dad sprung for one in late 1986. He bought it as a Christmas gift to the whole family.

VCR ownership suffered from the same "razor and razorblade" problem as game console ownership. With VCRs the movies you'd buy could add up quickly to more than the player.

Back in the VHS heyday, movies were heinously expensive. I remember shopping with my dad for a few movies to watch along with our new VCR. Major new-release titles were priced at $70 each. Again, inflation index calculation... that's $165 today.

Can you imagine buying a movie for $165 today? I mean, even aside from the fact that you can stream thousands of movies titles on Netflix, etc., for under $20 month, if you want to outright own a movie you can buy physical media such as Blu-Ray on Amazon for usually around $20 for new releases, or wait several months and pick it up for $10. That is so much cheaper than shelling out $165 to own it on VHS!