A Rasmussen poll this week found that 68% of Americans would rather have fewer mail delivery days if it meant keeping the price of a stamp down. Don’t they realize that cutting the number of delivery days implies a price increase itself?
The price now includes six days of delivery. At 44 cents a stamp, that’s 7.33 cents per delivery day. If the number of delivery days is cut to five, each delivery day costs 8.8 cents. That’s a 20% increase, equivalent to raising the price of a six-day-delivery stamp to 52.8 cents. The post office has asked for a 2-cent increase in the price of a stamp, to 46 cents—much less than the price implied by a reduction in delivery days. Remember, when you buy a stamp, you’re actually buying the delivery of your mail, not a sticky piece of paper.
The point is that when service is reduced, even if the nominal price remains the same, the actual value is decreased. This stamp example is one of many in which service is reduced to keep prices low. At first glance it makes inflation look stable, but in reality Americans are paying more for less. In other words, it’s still inflation.
Airline tickets are another great example. Through time, ticket prices are roughly stable, but service and comfort levels have collapsed. Today you’re paying for baggage, drinks, food, and even pillows on some flights. If you’re a big person, you may even be forced to pay for more than one seat!
Gasoline is another prime example. Services at gas stations have degraded to the point that now you fill up yourself, check your own oil, wash your own windows, and pay at the pump without ever seeing an attendant. All these services used to be complimentary with gasoline purchases. You should be getting a discount for doing all the work yourself, but the price of gasoline has gone up and up.
Degradation in services and other perks has helped hide the extent of inflation in the U.S. for a long time. Imports from countries with cheap labor have also helped keep inflation low as jobs have been shipped out of the U.S., but with monster trade deficits, it’s only a matter of time before foreign goods increase in price.
The natural state of an economy is deflation, not inflation. Prices should decrease as more efficient ways of manufacturing and providing services are found. For instance, why is mail getting more expensive if the post office is now using electronic sorting and trucks for delivery, rather than the hand sorting and horse-drawn carriages of days gone by? The answer is that the debasement of the U.S. dollar has kept unrecorded inflation soaring. This intentional inflation has been used by the government to fund wars and massive entitlement programs, all at the expense of Americans’ standard of living and savings.
With the Federal Reserve holding interest rates artificially below natural levels, expect inflation to increase, your standard of living to decrease, and your savings to fall behind. With an administration funding two wars and massive new entitlement programs with debt, expect politicians to give the Fed a green light on even more inflation.