26
Nov
10

what’s a dollar worth?

The short answer is: Not as much as you think.

The other day Alana was driving into town and asked me if she could pick up anything we needed. Yes, thanks, I said. Would she please pick up a dozen eggs, a pound of butter, a block and two ten-pound bags of ice?

Eggs, butter, and frozen water. That’s all.

I gave her a $20 bill and, a little more than an hour later, Alana returned with these items and $7.81 in change. “Is that all?” I thought. I’m not much of a price shopper, so I guess I’d expected to see a Hamilton and some change, not a Lincoln and two Washingtons. The change seemed so puny it bothered me.

But why was I surprised? I write about our eroding money value all the time. I shouldn’t have been shocked at all. But this time I was, and I took it personally.

Alright, let’s think about this… why would I be so surprised? Obviously this experience shows there is a disconnect at work between what I expect a dollar will purchase and its real buying power.

So using the Consumer Price Index (CPI), I did a calculation to see how much these same items would have cost at various points in my lifetime. In 1949 (a year after I was born) these items would have cost $1.36. In 1959, they would have cost $1.66; in 1969 $2.08; in 1979 $4.12; in 1989 $7.05; in 1999 $9.47; and today $12.19.

If you look at the CPI numbers for my eggs+butter+ice shopping cart, you can see that its price in dollars accelerated sharply after the US stopped backing its money with precious metals in 1971. Yet this ninefold increase over sixty years was a gradual process which at any particular moment was not especially noticeable. After all, I only noticed just now.

It’s a fact that cognitive awareness of change and making appropriate adjustments in our “frames of reference” do not necessary take place at the same time. Frames of reference may lag 3 to 7 years or more behind cognitive awareness. This lag is recognized, for example, in research conducted by the Federal Reserve Bank of St. Louis showing that changes in the growth rate of money are not fully reflected in the inflation rate for five years.

Looking at my CPI calculation and squaring it with my assumption of how much change I should have received, there’s no conclusion other than that I’m a slow learner. My internalized “frame of reference” is (or was until now) ten years out-of-sync with reality!

This perceptual lag is a normal phenomenon, and one economists, investors, and business people regularly take into account in their pricing and buying decisions. They count on all of us being “slow learners” to some degree. Were it not for this phenomenon, arbitrage (which takes advantage of simultaneous differences in perceived values of the same thing between markets) would not be possible. There’s got to be a perceptual lag for an Ivan Boesky to make money. (By trading with insider information, Boesky was just better—and sneakier—at getting out ahead of the perception lag.)

The problem, of course, is the money. It’s the most confusing thing because a dollar is never what you think it is. Even though the numbers on a piece of paper money always remain the same, the buying power is always fluctuating along a downward trendline. It’s hard to keep this in mind and adjust your behavior accordingly. Even though we know the earth is round, it’s easier to act like a flatlander. And folks like our friends at the Federal Reserve count on this and use our flatlander tendencies against us to get what they want. I wish we still had commodity-based paper money so I wouldn’t lapse into this laggard thinking so often, so I could keep things real in my head.

Failing this, we need to begin producing something here at Estrella Vista that we can use in barter and trade. I can think of a lot of reasons why they wouldn’t be practical for use as legal tender, but the first such commodity to come on line will be eggs. In about a month or so, our chickens should start laying. At today’s prices for organic free-range eggs, each egg will be worth about 25¢.

So what’s a dollar worth? Four eggs!

Yesterday at Jerry’s and Eva’s Thanksgiving I was sitting at table with John Wells, who told me he is about to start selling picture postcards from his Field Lab blogsite. He retrieved a packet of the postcards from his truck, and there were some I really liked. This is one of my favorites.

I congratulated John on the launch of his new postcard venture, and mentioned (a little jealously) that we are still a month or more away from egg production.

“How much are you charging for a packet of postcards?” I asked him.

Five bucks for 12 postcards, postage included.

Hmmm, I thought. That’s twenty eggs per packet. It’s “Black Friday” already, and I haven’t got a clue what to give as Christmas gifts this year. Money is tight. Maybe my chickens will come through for me in time…

“Would you take your payment in eggs?” I asked.

John looked at me a little funny but said he guessed he would.

Here is a link to John’s blog in case you’d like to buy some postcards: http://thefieldlab.blogspot.com/. John says he’s just set up a PayPal button to facilitate your purchase.

Only problem I can see is PayPal doesn’t take eggs.

۞

Groove of the Day

Listen to Bob Kames performing “The Chicken Dance”

Oh I’m sorry—that was a diabolical, evil, earwormy thing for me to have done.

This one will “clear your palate” and give better energy for Black Friday:

Listen to the Wood Brothers performing “The Chicken Reel”


2 Responses to “what’s a dollar worth?”


  1. November 26, 2010 at 6:48 am

    Hi Dan

    I am a firm believer in the bartering concept, and look forward to doing much of it on our smallholding. But I think you should barter while you can – from the sounds of it, your government, the via S 501 bill, want to stop all that!

    From the breakdown you gave, your CoL is roughly the same as ours – here we can buy 6 eggs for roughly ZAR12.00 which (at today’s exchange rate) equates to $1.70 Hectic! And our butter is ZAR25.95 ($3.66) / 1/2 kg (1 lb). That would equal $5.36 – so your ice would cost roughly $6.83 (ZAR48.08)/ 20 lbs?

    Thankfully, though, the likelihood of our ruling party making the sale of home grown produce illegal is remote – otherwise 1/2 – 3/4 of our population would starve to death.

    I follow John’s blog too and am constantly amazed at how his mind works, his building design and gadget / equipment resourcefulness, and what he thinks of to offer for sale. The postcards sound a good idea – but the printing costs have got to be heavy too?

    In our current economic situation we’ve all got to make a plan to survive – I’m just thankful that I have the WWW as a source of info and the health to carry through with what I plan.

  2. 2 Conust
    November 28, 2010 at 7:34 am

    Is a very well written post….. Thanks so much for information. ….Sorry for my English


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