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More on How Inflation Turns Us Into Con Artists

ilene's picture




 

Here's a Phil's Stock World favorite for today.  John Rubino is the co-author of the book "The Collapse of the Dollar" and writes frequent articles about the economy at his blog, "Dollar Collapse." - Ilene

More on How Inflation Turns Us Into Con Artists

Courtesy of JOHN RUBINO of Dollar Collapse 

John Maynard Keynes once said of inflation:

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Here’s one of the “hidden forces of economic law” to which Keynes referred, courtesy of yesterday’s New York Times:

Food Inflation Kept Hidden in Smaller Bags

Chips are disappearing from bags, candy from boxes and vegetables from cans.

As an expected increase in the cost of raw materials looms for late summer, consumers are beginning to encounter shrinking food packages.

With unemployment still high, companies in recent months have tried to camouflage price increases by selling their products in tiny and tinier packages. So far, the changes are most visible at the grocery store, where shoppers are paying the same amount, but getting less.

For Lisa Stauber, stretching her budget to feed her nine children in Houston often requires careful monitoring at the store. Recently, when she cooked her usual three boxes of pasta for a big family dinner, she was surprised by a smaller yield, and she began to suspect something was up.

“Whole wheat pasta had gone from 16 ounces to 13.25 ounces,” she said. “I bought three boxes and it wasn’t enough — that was a little embarrassing. I bought the same amount I always buy, I just didn’t realize it, because who reads the sizes all the time?”

Ms. Stauber, 33, said she began inspecting her other purchases, aisle by aisle. Many canned vegetables dropped to 13 or 14 ounces from 16; boxes of baby wipes went to 72 from 80; and sugar was stacked in 4-pound, not 5-pound, bags, she said.

Five or so years ago, Ms. Stauber bought 16-ounce cans of corn. Then they were 15.5 ounces, then 14.5 ounces, and the size is still dropping. “The first time I’ve ever seen an 11-ounce can of corn at the store was about three weeks ago, and I was just floored,” she said. “It’s sneaky, because they figure people won’t know.”

In every economic downturn in the last few decades, companies have reduced the size of some products, disguising price increases and avoiding comparisons on same-size packages, before and after an increase. Each time, the marketing campaigns are coy; this time, the smaller versions are “greener” (packages good for the environment) or more “portable” (little carry bags for the takeout lifestyle) or “healthier” (fewer calories).

Where companies cannot change sizes — as in clothing or appliances — they have warned that prices will be going up, as the costs of cotton, energy, grain and other raw materials are rising.

“Consumers are generally more sensitive to changes in prices than to changes in quantity,” John T. Gourville, a marketing professor at Harvard Business School, said. “And companies try to do it in such a way that you don’t notice, maybe keeping the height and width the same, but changing the depth so the silhouette of the package on the shelf looks the same. Or sometimes they add more air to the chips bag or a scoop in the bottom of the peanut butter jar so it looks the same size.”Thomas J. Alexander, a finance professor at Northwood University, said that businesses had little choice these days when faced with increases in the costs of their raw goods. “Companies only have pricing power when wages are also increasing, and we’re not seeing that right now because of the high unemployment,” he said.

Most companies reduce products quietly, hoping consumers are not reading labels too closely.

But the downsizing keeps occurring. A can of Chicken of the Sea albacore tuna is now packed at 5 ounces, instead of the 6-ounce version still on some shelves, and in some cases, the 5-ounce can costs more than the larger one. Bags of Doritos, Tostitos and Fritos now hold 20 percent fewer chips than in 2009, though a spokesman said those extra chips were just a “limited time” offer.

Trying to keep customers from feeling cheated, some companies are introducing new containers that, they say, have terrific advantages — and just happen to contain less product.

Kraft is introducing “Fresh Stacks” packages for its Nabisco Premium saltines and Honey Maid graham crackers. Each has about 15 percent fewer crackers than the standard boxes, but the price has not changed. Kraft says that because the Fresh Stacks include more sleeves of crackers, they are more portable and “the packaging format offers the benefit of added freshness,” said Basil T. Maglaris, a Kraft spokesman, in an e-mail.

And Procter & Gamble is expanding its “Future Friendly” products, which it promotes as using at least 15 percent less energy, water or packaging than the standard ones.“They are more environmentally friendly, that’s true — but they’re also smaller,” said Paula Rosenblum, managing partner for retail systems research at Focus.com, an online specialist network. “They announce it as great new packaging, and in fact what it is is smaller packaging, smaller amounts of the product,” she said.

Or marketers design a new shape and size altogether, complicating any effort to comparison shop. The unwrapped Reese’s Minis, which were introduced in February, are smaller than the foil-wrapped Miniatures. They are also more expensive — $0.57 an ounce at FreshDirect, versus $0.37 an ounce for the individually wrapped.

At H. J. Heinz, prices on ketchup, condiments, sauces and Ore-Ida products have already gone up, and the company is selling smaller-than-usual versions of condiments, like 5-ounce bottles of items like Heinz 57 Sauce sold at places like Dollar General.

Some thoughts:

  • When Fed officials claim that inflation is “well contained” are they measuring per ounce or per package? It wouldn’t be a surprise, given how disconnected from reality they frequently sound, if they’re being fooled by manufacturers’ packaging scams. [The Fed officials may measure package to package without being "fooled."  I remember reading that that was permissible and will look for the reference.  See also Michael Panzner's "More than a little doubt." - Ilene]
  • If manufacturers are playing games with package sizes you can bet they’re also using cheaper ingredients, so not only are we getting less of our favorite things, they’re probably not as good as they were when we first developed an attachment to them.
  • It’s an article of faith among modern economists that a little inflation is a good thing because it lets companies raise prices and workers get raises, so everyone feels richer. But that ignores the other side of the equation, which is, as we’re now seeing, a decline in product quality and producer credibility. In the end we don’t feel richer because we got a raise; we feel ripped off by companies we used to respect.
  • Those same economists see deflation as a bad thing because it makes debt harder to carry. But this also overlooks the impact of incentives on behavior and character. Consider: if you make, say, candy bars and the prices of sugar and chocolate are going down, you want to avoid having to cut your selling price because holding the line on price produces a wider profit margin. So you start using higher-grade chocolate or increasing your candy bars’ size — and you let your customers know that you’re improving your products. Your credibility goes up because you’re offering a better deal, and doing so very publicly. As this practice spreads through the larger economy, the result is a culture of quality and integrity and customer service. Where inflation turns merchants into secretive con artists, deflation produces transparent purveyors of ever-better deals. In a deflationary world, our paychecks don’t rise as much, but everyone seems to be working for us rather than trying to rip us off.
  • Viewed this way, only an idiot (or a Keynesian economist) would choose inflation over deflation.

Picture credit: Jesse's Cafe Americain

 

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Thu, 03/31/2011 - 15:40 | 1122565 gratefultraveller
gratefultraveller's picture

I get to appreciate how here in Europe most foods are sold in fractions of kilograms/multiples of 100s, and how EACH price in a shop has to indicate the price per kilo/liter in addition to the price per box. You might have to bend down and look really hard, but it is there.

Actually a few months ago regulators allowed packages to be different sizes than the usual 100/200/250/500 grams, but it hasn't taken a hold yet.

 

I can only guess why the regulators would not have imposed similar rules in the US, probably it is so because they don't want to take away the scissors (to cut the consumers belts/suspenders)...

Thu, 03/31/2011 - 15:39 | 1122558 gerryscat
gerryscat's picture

"It’s an article of faith among modern economists that a little inflation is a good thing because it lets companies raise prices and workers get raises". Yet more proof economists are idiots. Next then you know they'll be tell us war is good for us. What they don't seem to understand is quality of life. To me, more resources + fewer work hours means a higher quality of life.

Thu, 03/31/2011 - 15:35 | 1122549 Hannibal
Hannibal's picture

WELL, I AM STICKING WITH MY RICE AND BEANS WITH COLLARD GREENS. IT'S ALSO THE  BEST HEALTH INSURANCE I CAN THING OF.

Thu, 03/31/2011 - 15:06 | 1122441 Stuck on Zero
Stuck on Zero's picture

I like this statement: "Viewed this way, only an idiot (or a Keynesian economist) would choose inflation over deflation."  Ben ain't no idiot.  He knows that only one small group of people benefit from inflation: the very rich insiders who control him. 

Thu, 03/31/2011 - 15:37 | 1122553 falak pema
falak pema's picture

More appropriately they lose their underwear if there is prolonged deflation.

Thu, 03/31/2011 - 14:01 | 1122199 LiquidBrick
LiquidBrick's picture

I stopped reading after "9 children" - She should have know something was up with her personal balance sheet after the first child's first meal.

 

 

Thu, 03/31/2011 - 13:53 | 1122161 unnamed enemy
unnamed enemy's picture

when three boxes of pasta are not enough for a meal- you have tooo many children.

Thu, 03/31/2011 - 07:23 | 1120680 Everybodys All ...
Everybodys All American's picture

Get a clue these people are not stupid. This is being done on purpose to refresh the bank's balance sheets.

Thu, 03/31/2011 - 04:17 | 1120563 Weisbrot
Weisbrot's picture

my 59 ounce half gallon of juice agrees and yet it all seems good throught the eyes of those who are looking to trim down the waist lines of us fat folks.

Thu, 03/31/2011 - 02:30 | 1120496 nah
nah's picture

is the wisconsin cops unions going after the banking morons that fooled the .gov and union bosses into destroying the earnings power of their communities

.

and their Sacrosanct cop justice yawn

Thu, 03/31/2011 - 02:23 | 1120487 nah
nah's picture

something like these guys not wanting to sell or manage their capitol investments... to buy a trinket

.

cuz its all overleveraged anyways... if they go to market to buy the trinket and actually trade for goods and services... entering into a new position of ownership

.

the act of getting people to trade for the capitol will expose how bankrupt they all are and put their 'companies' out of business...

.

so instead they all bullshit the general population 'taxpayers' and say THEY ARE RICH

.

fucking worth 100s of millions... hell billions of $$$

.

and they just go to the bank... people piss themselves fawning over our indesposed lords lifestyle... and give him a loan he will most surely pay

.

to buy trinkets with your money

Thu, 03/31/2011 - 02:02 | 1120467 Augustus
Augustus's picture

What was once a 1 lb can of coffee is now 12 ounces.  'Nuff said.

 

However a dozen eggs is still 12.  how long will that last?

Thu, 03/31/2011 - 14:39 | 1122349 Cruel Aid
Cruel Aid's picture

If a bakers dozen has 13, Maybe a bankers dozen will have 11.

Or 10... weight distribution.

Thu, 03/31/2011 - 14:52 | 1122392 espirit
espirit's picture

or... they could be the size the easter bunny leaves behind.

Thu, 03/31/2011 - 15:00 | 1122412 Cruel Aid
Cruel Aid's picture

When you get into the economics of it, packaging cost begins to rise which screws me and the business' bottom line even more.

Picture one potato chip in a very small bag. I'm gonna need more than one bag for a fix.

Stop the spiral and face the music.

Thu, 03/31/2011 - 14:19 | 1122263 A Nanny Moose
A Nanny Moose's picture

Since we have the most disjointed measurement system, I am certain making a dozen = 11  will cause nobody to blink twice.

Thu, 03/31/2011 - 14:44 | 1122361 Thisson
Thisson's picture

Well if a baker's dozen can be 13, why can't a farmer's dozen be 11?

Thu, 03/31/2011 - 14:41 | 1122356 Thisson
Thisson's picture

Well if a baker's dozen can be 13, why can't a farmer's dozen be 11?

Thu, 03/31/2011 - 01:45 | 1120442 Bansters-in-my-...
Bansters-in-my- feces's picture

Inflation is "FUCKING THEFT."..!!!!!!!!

Fuck of Fedreral Reserve Corporation.and DIE.

Thu, 03/31/2011 - 06:20 | 1120629 Sathington Willougby
Sathington Willougby's picture

IRS is fucking theft, and government is theatre to distract you from the pickpocketing.

Thu, 03/31/2011 - 01:33 | 1120426 medicalstudent
medicalstudent's picture

when economies grow, there is deflation.

 

inflation is an artifact of our ponzi scheme banking system.

 

americans will be getting a crash course on all of this in a 24 hour period at some point in the future.

Thu, 03/31/2011 - 01:03 | 1120298 ElTerco
ElTerco's picture

Packages may weigh half as much, but the quality of the contents are twice as high.  I know so because the hedonics adjusters published it.  BTW, The emperor only looks like he has no clothes because he is wearing the finest of silk.  Another zinger from the hedonics department.

Wed, 03/30/2011 - 23:32 | 1120173 ebworthen
ebworthen's picture

 

You could compare Keynes to other academics, illuminaries, and saints throughout the ages in the way that his theories and words are twisted, warped, and amalgamated to suit the purposes of current generations.

No judgement on any personage, just an observation.

 

Thu, 03/31/2011 - 06:24 | 1120606 falak pema
falak pema's picture

It is ironic to see on a blog site where the dominating mantra is "WE HATE KEYNESIAN LOGIC" the number of intelligent references now appearing out of the wood-work to that great illuminary, 'deviant iLLUMINATI' for the majority here, I love to see people eat their own words. In the face of reality as it deploys its scary, ominous, bald eagle wings.

As for inflation over deflation, its like love over hate. Human excesses are the source of it. Not easy to change human nature. Don't blame the doctor, and more importantly don't extrapolate his remedy out of context. There is a time for all types of remedies. But it's the root cause we have to tackle : the greedy/dogmatic mind set. The solution then become obvious to men of supple, honest, empirical brain.

Wed, 03/30/2011 - 23:18 | 1120141 Ahmeexnal
Ahmeexnal's picture

No more "supersize me" at McDs.

It is now "superprice me".

Wed, 03/30/2011 - 23:16 | 1120138 nkktwotwozero
nkktwotwozero's picture

I totally agree.

McDonald's became a cheat.

They used to offer a "Double Cheese Burger" for $1.

Due to "inflation" of the non core variety, cheese went up.

So now it is a "McDouble" with ONE slice of cheese.

My reaction was my self portrait.

Wed, 03/30/2011 - 23:36 | 1120183 Beau Tox
Beau Tox's picture

My choices were 'reply' or 'flag as junk'.

If 'you are what you eat', then you fellows are already junk and I just have to 'reply'.

When TSHTF, McDonald's won't be serving sheep eyes anymore and you will have to find real food.  I suggest you start learning to cook NOW!

Wed, 03/30/2011 - 23:54 | 1120206 nkktwotwozero
nkktwotwozero's picture

Pretty sure sheep eyes are an upgrade over beef.

Which is what McDonald's makes their patties out of 100%.

I eat McDouble's because I lift weights.

And it's a very cheap and quick source of post lift protein.

 

I've got a garden going out back too.

So I understand the importance of "real" food.

But industrial food, showered by the products of ancient sunlight, is CHEAP.

 

Not to the environment, to most people's health or any metric like that.

But in $'s; it's fucking cheap.

Thu, 03/31/2011 - 00:19 | 1120292 gall batter
Thu, 03/31/2011 - 06:55 | 1120660 DavidC
DavidC's picture

Astonishing. Visually, the 1996 one actually looks better than the 2008 one!

DavidC

Wed, 03/30/2011 - 23:35 | 1120177 ebworthen
ebworthen's picture

Hey buddy, there are two parts to the bun aren't there?

Wed, 03/30/2011 - 23:48 | 1120218 nkktwotwozero
nkktwotwozero's picture

I do the "Synthetic Quarter Pounder":

Take two McDoubles.

Throw away the bottom of one, top of another.

Make new sandwich.

Close enough for JP Morgan work.

Wed, 03/30/2011 - 23:07 | 1120116 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

spokesman Basil T. Maglaris

That's hilarious.  Or is it just me?

 

Thu, 03/31/2011 - 08:26 | 1120811 falak pema
falak pema's picture

have you ever tried laughing gas? Just testing your memory bank..in case there's hyperinflation set in.

Wed, 03/30/2011 - 22:50 | 1120075 gangland
gangland's picture

fucking cunt has 9 kids

Wed, 03/30/2011 - 22:36 | 1120035 Beau Tox
Beau Tox's picture

Ilene is submitting info which finally quantifies concerns that those in the real world are beginning to verbalize.  Sometimes I imagine that myself and other net citizens spend so much time at a keyboard that we will not be able to care for ourselves when inflation prices us out of necessary goods.  I am trying to be charitable to those of you who have not made meaningful preparations.  We must balance our PMs with real-world groceries and energy resilience, otherwise we will have to divest our PM stash right when we should be clinging tightest.

                                                                   The Litany of NOW!

Toilet paper, NOW!  Canned goods, NOW!  Insulin, NOW!  Diesel, NOW!  Sugar, NOW!  Pasta, NOW!  Wheat Flour, NOW!  Underwear, NOW!  Propane Bottles, NOW!  Incandescent LightBulbs, NOW!  Shoes, NOW!  Condoms, NOW! MREs, NOW!  Sanitary Napkins, NOW!  Dog Food, NOW!  Cat Litter, NOW!  Whiskey, NOW!

Thu, 03/31/2011 - 00:49 | 1120354 RockyRacoon
RockyRacoon's picture

I can see dog food as a main course, but cat litter?  Howzat?

Thu, 03/31/2011 - 06:31 | 1120641 Bendromeda Strain
Bendromeda Strain's picture

Roughage

Wed, 03/30/2011 - 21:40 | 1119864 Elliott Eldrich
Elliott Eldrich's picture

While this article offers one explanation for the perceived "necessity" of inflation, I would think that a much more plausible reason for systemic inflation is this: If you have a debt-based fiat currency monetary system, where new money is only created as debt, which must be repaid with interest, then the only way to keep the game going is to build in a certain level of structural inflation, which makes it possible for the debts incurred to be repaid with a currency that is worth less than when borrowed.

In other words, as long as we have a debt-based fiat currency system, we will have inflation, guaranteed.

Thu, 03/31/2011 - 00:39 | 1120330 IQ 145
IQ 145's picture

 Correct. As Milton Friedman observed, "inflation is always, and everywhere, a monetary phenomenon." All the bullshit in the article about package sizes and so forth is just ignorance. Inflation is the practical realization of the fact of monetary surplus; period. That's all there is. There is nothing else. And yes, we do have inflation, and it will continue.

Thu, 03/31/2011 - 06:29 | 1120638 Bendromeda Strain
Bendromeda Strain's picture

The article refers to "biflation" or "stagflation" or whatever you prefer. The rising input costs PLUS the loss of pricing power. It wasn't a treatise on Friedman. You know, are you going through a rough patch? I have noticed a trend in your responses...

http://www.youtube.com/watch?v=komFcq3TDSY

Thu, 03/31/2011 - 08:25 | 1120804 falak pema
falak pema's picture

bifellation...?

Thu, 03/31/2011 - 14:07 | 1122221 Jay Gould Esq.
Jay Gould Esq.'s picture

Did someone say, "con artists ?"

Keeping with the flavor of the con artist/mark relationship, note the underwriters...

...All one, big, happy grifting family.

http://www.reuters.com/article/2011/03/31/ally-ipo-idUSN3121882620110331

Wed, 03/30/2011 - 22:25 | 1120014 Holodomor2012
Holodomor2012's picture

The magic trick is convincing people that the inflation can be maintained at a low and fixed percent.  But it can't, can it?  The money supply will inflate exponentially based off of interest rates.  Perhaps 2012 wasn't predicted by the Mayans so much as the Khazarians.

Wed, 03/30/2011 - 22:01 | 1119928 Sathington Willougby
Sathington Willougby's picture

You're not exactly splashing the pot with that two cents.  I mean you're totally right but that part is straightforward.  You didn't mention the obvious benefit of "first use" of the currency if you hold the printer.  You just walk around town looking in windows, when you see something your mistress likes, you print off the necessary cash, force some fool who buys into party politics to service the debt you created (to yourself) and buy the trinket.  Only after you buy it does the money get into circulation to water up the rest of the available goods and services.  Meanwhile on the energy end of the equation, you force the slaves to use an inferior means and method of producing the goods and services, in terms of efficiency and output (green energy), further enslaving the livestock meanwhile creating more debt based transactions their pathetic slave children will have to service.  

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