By IVAN ORISEK
Media writes about "Americans who are struggling," prices are allegedly sky high and inflation is out of sight.
The New York Times, "All The News That's Fit To Print," writes alarmingly that the prices of food are the highest they have ever been.
Let us take a look at the numbers:
Inflation is currently 3.5%. It has been on average 3.28% per year over the last 51 years since 1975. The 2% inflation target adopted by our Fed is not the result of any rigorous economic study, but was pulled out of thin air. Therefore, the inflation target could have been 1% or 3% just as well.
The cumulative inflation over the last 51 years has been 522%. Thus, $1 in 1975 is worth $6.22 today (and not just $5.22).
First, about the New York Times article: The prices are the highest that have ever been due to inflation and it is not a negative for the national economy. For we need the positive inflation to protect us against the unwanted ravages of deflation.
Thus, in five years, the prices would be even higher - by 17% - if the inflation rate continues being 3.28% (3.28% raised to the fifth power equals 17%).
The question then is whether the household income have kept pace with inflation in a longer run. The answer is yes: The economic data shows that the household income has been rising slightly above the level of inflation for decades thereby slowly increasing the American standard of living that remains the highest in the world.
Now about the allegedly sky high prices:
The average retail price of salmon in 1975 was $1.50 to $2.50 per pound (ex-vessel prices paid to fishermen were $0.70 to $1.20). $1.50 to $2.50 a pound in 1975 translates into $9.33 to $15.55 today adjusted for inflation.
The price of salmon at our supermarket, which has 400 stores nationwide and is not cheap, fluctuates between $9.99 to $10.99 a pound. It was $9.99 last Thursday. But we did not pay that much. For regular customers with the "Price Plus" card, the price was $7.75 a pound.
Aldi sells a pound of salmon for $8.69 and Walmart for $8.97.
It must be clear from this data that adjusted for inflation salmon is cheaper per pound today than it was 51 years ago in 1975. At a minimum, salmon is not more expensive today that 51 years ago in 1975.
Q.E.D.
I made similar comparisons for other kinds of food in the past.
All this puts paid to the "bipartisan proposals" that appear from time to time in our legislatures to lower the price of groceries. Such proposals are merely based in the lack of understanding of economics and the mathematics of inflation.
The disastrous wage and price controls by the Republican president Nixon in 1971 and the economic program to control the grocery prices by the Democratic presidential candidate Harris should serve as a warning.
When our representatives in the Congress, a Democrat now as well as a Republican in the past, came up with the "bipartisan proposal to control grocery prices," I wrote to them with this explanation. To their credit, they both dropped the issue.
Legitimate complaints are about the high price of gas and the price of housing. As soon as the Strait of Hormuz is reopened, there will be the glut of oil with a corresponding drop in the price of gas. (The US remains the largest producer of oil in the world.) There are also other ways to lower the prices of motor fuel as the President showed us yesterday.
The high price of housing is caused by a high unsatisfied demand as Americans have been buying houses left and right for decades while new construction has been hampered by all kinds of regulations.
Surpised? You should be. Remember that you heard this on this channel first.
Ivan Orisek, a retired business owner, lives in Sullivan County, NY.
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