Debasing not just the currency
I eat lunch at a local fast-food place occasionally. My usual order runs to just over $4, so I was annoyed when I realized while walking over there yesterday that I'd forgotten to pick up a nickel or dime--I was going to end up with a pocketful of change. In fact, though, I needn't have given it a thought: My order cost $4.60.
That disconnect is an example of one of the many ways in which inflation hurts the economy. There's a certain convenience to just "knowing" how much something is going to cost. When prices are stable, you can go to the store confident that the dollars in your wallet will buy what they bought last week. During a time of inflation, though, any little purchase--lunch, a snack, a video rental--might cost significantly more. Even if you have what it cost last week, you have to consider whether it might be necessary to stop by the ATM before you run your errand.
It's not a lot of trouble--a moment's thought, an occasional extra trip to the ATM, a few extra dollars kept in the wallet and the checking account--but multiplied by everyone doing the same thing, it adds up to a considerable amount of extra expense across the entire economy. During a time of inflation, everyone ends up keeping a bit of extra cash on hand, because they know that this month's bills will be larger than last month's: money that could have been productively invested ends up sitting, because everybody's estimate of their expenses has greater uncertainty then before.
In fact, though, that's not the main topic of this post. In addition to costing more, my lunch was smaller--in fact, it was smaller by quite a bit. Not only is the currency being debased, but the products that we buy with it are being debased as well.
A can of coffee that held 36 ounces has been replaced with canister of about the same footprint that holds 33 ounces. (The new canister has a convenient handle that takes up the space previously used by the missing three ounces.) Other items I buy have made similar changes to the packaging to try to disguise the fact that you're getting a bit less.
Now, although I'm kind of insulted by the way they try to hide what they're doing, there's nothing fundamentally wrong with changing the size of a package. In fact, I'm actually rather pleased by the return of reasonable-sized units. (For example, I really like being able to get 8 ounce cans of soda. It's just the right amount to make a nice bourbon and coke. If I bought 2-liter bottles, I worry that I'd end up drinking more soda. And, if I didn't, it'd end up going flat before I poured my last 1.45 cocktails out of it the following week.)
Across the economy, though, it's no good when everything is being gradually smallified. Just as with constantly changing prices, constantly changing package sizes mean that everyone needs to pay a little extra attention--and when they don't, they end up having to make an extra trip to the store, or else do without. Neither of those outcomes is a catastrophe, but again, if you multiply them--and the effort made to avoid them--across everyone in the economy, it's a huge extra expense that doesn't benefit anybody.
How can you use this to your own benefit? It's tough, actually. Really, all you can do is minimize the effects. The two big costs are:
- The extra time and effort spent keeping track
- The extra money spent sitting idle in wallets and checking accounts
These two are largely alternatives to one another. If you pay close attention--check prices daily, check package sizes, keep track of actual amounts on hand (rather than counting packages), then you can carry on pretty much as before. On the other hand, if you just keep a bit of extra cash (and ample stocks of household goods), then you don't need to pay much extra attention, but the money used that way can't be invested.
About all you can do is find your own sweet spot--pay more attention, keep more cash on hand, or do a little of both--and then wait for the government to get inflation under control again.