Inflation
just around the corner

W   
ell, gas prices are up again now at $1.79 at the QT station. It seems like they go up every day. Yesterday, I see that WalMart upped its milk prices to nearly three dollars. Last year we were paying a buck fifty or so. What's going on here?

For those who are old enough ...

to remember the inflation of the 70's, here it comes again. For those who didn't experience it, here's what's to come.

Smaller plates in restaurants ... Yup, so that the smaller portions don't look so ... hmmmmm ... undernourished? And ... the Slim Jim ... that dried beef stick in the long cellophane package ... about eight inches long? ... well, the package stays the same size but ... the stick inside shrinks ... to about half size ...
"Where's the beef?".

But we want to examine general principles don't we?

The general principles of inflation
as experienced by
Yours Truly

Principle #1 ... the basic markup

Businesses follow this general rule. If widget A costs 1 dollar to make, the manufacturer sells it to middleman B for 2 dollars who sells it to middleman C for 4 dollars who sells it to storeowner D for 8 who sells it to the consumer F for 16 dollars.

If the cost of the widget goes up by 3 cents at A, B will get it for 2.06 ... C will pay 4.12 and D will shell out 8.24 and the consumer gets F'd at 16.48. This is normal and the normal first stage of inflation which is not immediately recognized since inflation requires the recognition of a broad market trend over an extended period which yields dependable economic "numbers".

Principle #2 ... anticipation

At some point, after inflation is identified, businessmen come to realize that a price rise is inevitable and raise prices ... IN ADDITION TO ... that given at the lowest level A ... so that ... they will have something like a "warchest" of extra cash to weather the storm. So widget A doesn't just double ... there is an added percentage at each stage of the distribution process. If the inflation rate at point A is 2%, the end consumer might get a 5% inflation rate. Get it?

Principle #3 ... the reversal of the standard business model

At this stage, the people who set prices see ... in the faces of those doing the buying ... the aura of resignation ... and go for the jugular. I saw this process in the faces of owner and customer in a little sandwich place in Michigan long ago.

The customer said, "I see you've raised your prices again" ...
Owner says, "Yup, inflation ..."

... which the customer accepted with complete resignation. For those who don't understand ... the customer is has been psychologically disarmed and the business owner can now pick his pockets with little opposition, i.e. he won't go away mad, he'll pony up the cash. Whereas normal business is directed from the bottom, up ... by competition for the customers money (requiring lower prices and better quality) ... stage 3 inflation business comes from the top down and the order of the day is ... whatever the traffic will bear.

This was the stage at which that inflation stopped. It did not go to stage 4. It was stopped by Gerald Ford's "Whip Inflation Now" buttons ... the most powerful economic tool ever devised ;o)

Principle #4 ... the government takes over (not yet in the USA)

Here is where everything goes to hell in a handbasket. The government starts to print money so it can buy stuff in the free market at the inflated prices and "cover" all emergencies. by this time greed has gone out the window in favor of fear. Everybody loses their life savings ... well not completely ... they buy that last cup of java with it.

Enter the dictator

You can have yer dictators ...
and you can have yer potaters ...
but you cain't have both.
- EBTX



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