Weekly Market Update by Retirement Lifestyle Advocates

          If you want a clear signal that inflation is not under control, all you need to do is examine one of the bills being proposed in Washington, D.C.

          Senator Bob Casey of Pennsylvania has introduced a bill that would give the Federal Trade Commission the power to ‘crackdown’ (the Senator’s own words) on corporations that reduce the size of a product without reducing the price.

          The good Senator has decided to attack shrinkflation.

          Here is the proposal as the Senator describes it on his website (Source: https://www.casey.senate.gov/news/releases/stop-shrinkflation-casey-introduces-legislation-to-crack-down-on-big-corporations-shrinking-products-without-reducing-prices):

 “Corporations are trying to pull the wool over our eyes by shrinking their products without reducing their prices—anyone on a tight budget sees it every time they go to the grocery store.  Pennsylvania families are sick and tired of digging deeper into their wallets for their weekly grocery runs while corporate CEOs laugh all the way to the bank. I’m fighting to crack down on shrinkflation and hold corporations accountable for these deceptive practices.”

          Senator Casey has written multiple reports on this topic:

“Greedflation:  How Corporations Are Making Record Profits on the Backs of American Families”

“Stuffing Their Pockets:  How Big Food and Agricultural Businesses are Making Your Holiday Meals More Expensive”

“Shrinkflation:  How Corporations Are Shrinking Products to Supersize Products”

            In his reports, Casey cites government inflation data that concluded that from June 2020 to June 2022, inflation rose 14% while corporate profits rose 74%.

          While I am not going to bat for corporations, it is worth pointing out that the government’s estimate of inflation is far from the realities of inflation.

          The officially reported inflation rate, the Consumer Price Index, is a number that is heavily manipulated.

          There are hedonic adjustments, weighting adjustments, and substitution.

          Hedonic adjustments are adjustments for improvements or, literally, adjustments for the ‘pleasure’ a particular product feature might give to the product user.  In other words, even though the product might cost more than the prior version of the same product, the new product’s improved features make up for the higher price paid for the product due to the increased pleasure the product provides.

          If you’re thinking that these hedonic adjustments are subjective, you’re right.

          Then there are adjustments for weightings.  When calculating the official inflation rate, or the Consumer Price Index, weightings can be adjusted (again subjectively) to report a Consumer Price Index number that is more favorable.

          And, then finally, there are adjustments for substitution.  If one product or service increases in price to a great degree, a government bureaucrat might substitute a similar but cheaper product or service to make the reported inflation rate more favorable.

          Bottom line:  by using the government’s officially reported inflation rate as the inflation benchmark, one will reach flawed conclusions.

          Nevertheless, this bill is now being pushed. 

          According to Senator Casey’s website, the Shrinkflation Prevention Act would:

• direct the Federal Trade Commission to promulgate regulations to establish shrinkflation as an unfair or deceptive act or practice, prohibiting manufacturers from engaging in shrinkflation
• authorize the Federal Trade Commission to pursue civil actions against corporations who engage in shrinkflation
• authorize state attorneys general to bring civil actions against corporations engaging in shrinkflation

        But Casey’s proposals don’t stop there.

        In addition to the Shrinkflation Prevention Act, Casey also co-sponsored the “Price Gouging Prevention Act.”  This act would empower the FTC and state attorneys general to enforce a federal ban on “grossly excessive price increases.”

        Again, I’m not going to go to bat for corporate profits, but these bills sound a lot like price controls which never work.

        The bottom line when it comes to price controls is that when a private corporation is told how much they can charge for a product or service, that company will quit offering the service or quit making the product once there is no profit to be made.

        One needs only to go back to the 1970s to find the imposition of price controls near an election to see first-hand the eventual outcome.  Consider this piece from “The Cato Institute”. (Source:  https://www.cato.org/commentary/remembering-nixons-wage-price-controls)

On Aug. 15, 1971, in a nationally televised address, Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.”

After a 90-day freeze, increases would have to be approved by a “Pay Board” and a “Price Commission,” with an eye toward eventually lifting controls — conveniently, after the 1972 election.

Putting the U.S. economy “into a permanent straitjacket would … stifle the expansion of our free enterprise system,” Nixon said. As President George W. Bush put it in 2008, sometimes you have to “abandon free-market principles to save the free-market system.”

There was no national emergency in the summer of ’71: unemployment stood at 6 percent, inflation only a point higher than it is now. Yet, after Nixon’s announcement, the markets rallied, the press swooned, and even though his speech pre-empted the popular Western Bonanza, the people loved it, too — 75 percent backed the plan in polls.

As Nobel Prize‐​winning economist Milton Friedman correctly predicted, however, Nixon’s gambit ended “in utter failure and the emergence into the open of the suppressed inflation.” The people would pay the price — but not until after he’d coasted to a landslide re-election in 1972 over Democratic Sen. George McGovern.

By the time Nixon reimposed a temporary freeze in June 1973, Daniel Yergin and Joseph Stanislaw explain in The Commanding Heights: The Battle for the World Economy, it was obvious that price controls didn’t work: “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.”

            Here we are, in another election cycle with high inflation, and there is once again talk of price controls even though those exact words are not being used to describe what is being proposed.

          Inflation, as you undoubtedly are aware, remains a problem.

          Even Treasury Secretary Janet Yellen, former Fed Chair, came clean this week, stating in an interview that she ‘regretted’ saying that inflation was ‘transitory.’ (Source:  https://seekingalpha.com/news/4079037-janet-yellen-says-she-regrets-calling-inflation-transitory)

          I guess that’s an apology of sorts.

Of course, she stated, as one would expect her to say, that the inflation trend is “clearly favorable”.

          The recent inflation numbers don’t back up Ms. Yellen’s assertions.

          The February inflation report came in hotter than the already hot January report. (Source:  https://www.zerohedge.com/markets/inflation-hot-consumer-prices-hit-new-record-high-19-bidenomics-began)

          While price controls won’t work, don’t be surprised if these initiatives get some traction, given that on Main Street, Americans are really feeling inflation.

 

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          This week’s radio program features an interview I did on the Financial Survival Network with host Kerry Lutz.   

          Kerry and I discuss the current economy, China’s big real estate problem and how we might be affected as well as the US real estate market. 

          Be sure to check out the interview now by clicking on the "Podcast" tab at the top of this page.

 

 

“Everybody pities the weak.  Jealousy you have to earn.”

                                 -Arnold Schwazenegger