[FoRK] Is Inflation really at 10%?

Ken Meltsner < meltsner at alum.mit.edu > on > Tue Dec 5 11:23:19 PST 2006

On 12/4/06, Simon Wistow <simon at thegestalt.org> wrote:
> Read this, don't know enough economics to comment on it, thought I'd
> throw it open to discussion.
>
>         http://www.clairewolfe.com/wolfesblog/00002320.html

Not sure about this one.  There are some threads of economic wackiness
lurking in this document, I suspect, but don't know enough to prove.

What is real is the vast inflation of certain luxury/discretionary
goods.  This was made clear to me by the prices in H Beam Piper's
_Murder in the Gunroom_ (available from Project Gutenberg), set not
long after WWII.

In it, we have what is described as one of the premier gun collections
(historical models back to the snaphaunce, matchlock, etc. days) with
several thousand items, all significant or collectible, and including
a number of items that were truly rare or unique.

The total value of the collection: $70K or so, if the pieces could be
sold slowly enough to not depress the market.  The 30 or so best
pieces were estimated at $10K, total, with one or two special -- truly
singular -- pieces going up to a few hundred or a thousand dollars.

Fast-forward to 2006.  I don't know the collectible gun market, but I
do know that planes and other hand tools can cost several $K for
collectible condition, rare items, and that truly unique pieces may go
an order of magnitude (or more) higher than that.  And gun collectors
are even more fanatical than tool collectors, I suspect.

Conservatively, this means that the price of some high-end
collectibles may have gone up by 100 times (or more) in the last 50-60
years.  Gold's gone up by 15-30x in the same time, and is currently
less than 20x the (fixed by law) price post in the late 1940s.

There are hints as to why this is so:

*  Getting $25K together from 5 solvent or well-off individuals to
purchase the collection in its entirety was considered nearly
impossible.  I don't think 5 professionally employed or wealthy
individuals would have trouble borrowing $250K *each* these days,
although the interest rate, collateral, and terms might be an issue.
There's a lot more discretionary money floating around these days.

*  Prices, of course, were lower -- I don't think the CPI has gone up
10x in the last 60 years, but that may be because of the market basket
effect, substitutions, etc.  House prices, even in California, haven't
gone up much more than 60x since WWII, right?  Salaries for high-end
jobs have definitely gone up way faster than inflation -- consider
ball player or CEO compensation  -- low-end jobs much, much less.

*  More collectors looking for investments rather than cool stuff --
definitely more people trying to beat the stock or real estate markets
by collecting the next big thing.  On one hand, this has actually
depressed prices for the more common items -- stamps, comic books,
cards come to mind -- since there are many more people with huge piles
of junk in their attics that they hope to cash in on someday.  On the
other hand, investment-sized  funds  (and eBay) have definitely had a
significant impact on the rare/unique stuff; first, paintings, china,
rare jewels, etc. but I'm pretty sure the buckets of money have
overflowed into other areas as well, like furniture, books, and tools.

*  Lower taxes now (at least for the wealthy) -- the book is riddled
with comments about the ridiculously confiscatory taxes (> 50% in the
higher brackets).  Same thing if you've ever read any of the Nero
Wolfe books.  The tax system has become more regressive in the last
half century, which tends to feed the above trends as well.

So, in a nutshell:

*  More money floating around, even in "real" dollars -- much easier
access to capital and relatively low interest rates, even in
historical terms.

*  More money chasing high-return investments since (high-end)
salaries have gone up much faster than the overall inflation rate.

*  Less money spent on taxes, further driving the previous two trends.

My suggestion: find the next Cristal, not the next Xerox or Apple.

Ken Meltsner

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