Coping With Inflation: A GenXer's Case for Embracing Higher Prices

 

The news this week has not been good. For those following the economy (even beyond pain at the pump), the Consumer Price Index, that is, the average of what we are paying for average goods and services, is up by 8%.  As you’ll likely hear on the news, this price increase is the largest, percentage-wise, we’ve seen since 1982.  If you’re a comfortable middle-to-upper-middle class person, it means that you’re probably cutting back on dinner out and putting off recreational purchases, and putting less back in savings.  If you’re closer to the bottom of the economic food chain, however, you’re making tough choices regarding gas versus the things your kids need to get through the week.  The CPI is no joke, especially considering that most American families have about $3000 in savings (with a full third having less than $1000) (https://www.fool.com/the-ascent/research/average-savings-account-balance/).  Many people, unfortunately, have very little to fall back on.

While it’s tempting to have a “boogeyman” to blame for all of these problems, a single face to aim our anger at, the true nature of this crisis is a perfect storm.  A global pandemic that creates a labor shortage while driving consumer demand because everyone is stuck at home right before a new land war in Europe. Now, there’s a sentence I never thought I’d have written before 2020, but this series of events has exposed so many problems and weaknesses in our current economic models. No one president, economist, doctor, or super-capitalist has all the answers on this one….or bears all the blame.

Global supply chains have given us greater access to raw materials, technologies, and varieties of products than ever before….but they’re easily disrupted. We, as Americans, love cheap goods….whose cost is based on importing from countries with lower labor rates….and whose supply is also disrupted by supply chain issues. At the same time, low margins on cheap goods create the need for perpetual economic expansion and continued reliance on foreign labor to enable the consumer to power the economy.

As if following our government’s lead, we spend far more than we put back.  The average American credit card holder carries over $5000 in debt….with a rate of over 20% (https://www.bankrate.com/finance/credit-cards/states-with-most-credit-card-debt/).  While savings accounts basically pay no interest, the current interest rates create scenarios where credit card users essentially will never pay off their debt. In the current situation, the same people who lack savings are often using their credit cards as stopgaps against rising prices.

This practice isn’t that different from the idea of the company store in early 20^th century coal mining America.  Miners were paid by companies in “scrip,” currency that carried no value outside of the “company store,” where prices were higher than the rest of the world.  The miners were trapped in a closed loop with no easy way out.  As poorer consumers find themselves using cards (and carrying balances), they are condemning themselves to perpetual use of the very instrument of their financial servitude.

The difference in our current situation, however, is shaped by our current need for perpetual economic expansion…and a part of the solution might be illustrated by an old washing machine. Bear with me here!

When I was a kid growing up in rural America during the 1970’s and 80’s, my grandmother had an old “ringer” washing machine:

This “labor saving” device worked as follows: The washer would agitate clothing with detergent; when it was finished, the user would put clothing through the ringer over a separate bin to remove the excess water before hanging the clothes on a line to dry.  These devices were popular from the early 20^th century through the WWII years, at which time they were replaced with more modern devices.

Here’s the thing: My grandmother was still using hers well into the 1980s!  Why?  Because it still worked.  It had parts that were replaceable, and her generation saw it as a substantial and worthwhile investment. This behemoth was built to last by American workers and sold by companies who knew their customers would likely keep it for a lifetime.

As a GenXer, I also remember how my mom would enforce thrift at the beginning of each school year.  You’d get enough new clothes to get you through a week at school; often times, jeans would be bought long and rolled up so you could “grow into them.” Investments, even in clothing, were made with long-term use in mind.  As a result, we literally wore our jeans until they no longer fit or were falling apart. 

Compare this modality with the current “fast fashion” model. Thanks to cheap import clothing, most Americans have enough garments to throw out (or donate) items that no longer fit their style. In the name of charity, many of these items are exported to poor regions of Africa, when much of this stuff is ultimately discarded in the ocean.  There are literally places where clothing is washing up on the beach as trash https://www.cbsnews.com/news/ghana-fast-fashion-environmental-disaster). While Americans drown in credit card debt, their closets are too full to hold all of their stuff.

At the same time, the rising prices of things such as cars and the fuel that powers them are making many consumers think more about their purchases.  For example, the average car now costs over $40,000, with monthly payments rising to over $600 for terms of up to 8 years. In other words, vehicles are now a more substantial investment (and a larger percentage of average household income) than ever.

This is not necessarily a bad thing. Let me explain.

By some estimates, an iPhone would cost roughly double if it were built in the U.S., so instead of paying $1300, we’d e investing $2600.  But what if that phone could last twice as long?  What if the $600/moth car payment would mean a vehicle that would be serviceable for the entire payment range and would be roadworthy for twice of that period?  Yes, these statements assume a closed economic system where low-cost foreign competition would not disturb the market, but my center argument is: If a washing machine can last for 60 years, why can’t a smartphone last for 6? 

Buying fewer things and putting more thought and focus into purchase is not anti-capitalist.  Car companies are already realizing that they can build fewer vehicles, sell them for higher prices, and waste less on materials and unsold inventory.  Consumers have already noticed that the average car can last a long time; on average, we’re keeping our vehicles for 12 years (https://www.econopaintscars.com/blog/americans-keeping-their-cars-longer-in-2019/#:~:text=Fast%20forward%20to%202019%20and,less%20stop%20and%20start%20driving).

At the same time, less emphasis on constant consumerism also supports secondary industries.  After all, who is keeping all of these 12-year-old cars on the road?  Who could be repairing more smartphones?  With the recent realization that our trades and service industries have been under-emphasized by educators and government, we could be building a self-sustaining economy by producing repairable, long lasting devices that could be supported by skilled labor….who, in turn, would create businesses and good-paying jobs.  At the same time, repairing and reusing cars, phones, and other devices is also good for the environment.  Why not leverage components that have already been taken out of the earth or produced in a factory instead of throwing them in another landfill?  Discarded smartphones are already causing a looming environmental crisis (https://www.vox.com/2017/11/8/16621512/where-does-my-smartphone-iphone-8-x-go-recycling-afterlife-toxic-waste-environment).

I know my takeaway message of “pay more for less” runs counter to the consumerism we’ve been encouraged to embrace since the 1930’s (as we bought out way out of the Great Depression), but the reality is that we cannot continue to base our economy’s success on perpetual increases of consumer spending on new goods. While inflation is no fun, it represents an opportunity to reset our views on how much “stuff” we need to own.  Embracing higher prices could ultimately create opportunities to bring more manufacturing back to the U.S. while improving the quality of life for most people in a way that still allows for competition, choice, and free markets. We might even have neater houses and garages within which our 12-year-old cars could actually fit.

As a GenXer, I lived with enough clothing for five days of school and watched my grandmother use a 50-year-old washing machine.  I’m not suggesting we go back that far, but adversity brings opportunity.  Maybe it’s time to reframe our view on just how much we truly need to be happy.