One reason inflation is worse than what the government says: Planet Money: NPR
All is not so happy in the happiest place on earth. The guests of the Magic Kingdom are restless. Despite reopening more than six months ago, Disneyland has yet to restart its tram services to and from parking lots, forcing visitors to walk almost a mile to enter and exit the park. Some Disney fans act like the company is some kind of greedy Cruella de Vil, ready to shoot cute puppies and turn them into coats for a profit.
“Customer service is gone at Disney,” commenter James E said on Facebook. “It’s about maximizing profit now.”
“They didn’t bring the streetcars back because it saves Disney money!” writes Daniel P. “Streetcars must be driven by more than one driver.”
This is “CUPIDITY,” says Harry Z. “It has nothing to do with COVID at the moment. “
A few weeks ago, amid growing fury online over Disneyland’s transportation issues, the company announced that it was finally reopening its famous monorail system. But, the company said, its trams to and from parking lots will remain inactive for the foreseeable future.
DAVID MCNEW / AFP via Getty Images
What happens in the Magic Kingdom happens throughout the economy. Dominoes is take more time to deliver pizzas. Airlines put customers who call them waiting For hours. Restaurants, bars and hotels are understaffed and stretched thin. The quality of service seems to be deteriorating everywhere.
We have all heard of rising inflation. The price of things goes up. And, if you’re reading this newsletter, you’ve heard of narrowing. This is when the price of things stays the same, but the amount you get goes down. The economy-wide decline in quality of service that we are seeing today is something different, and it does not have a good reputation. This is a situation where we are paying the same or more for the services, but they are pretty bad compared to what they were before. We come up with a new word to describe this kind of stealth, ninja inflation: scam. It’s when, instead of just raising prices, companies skimp on the goods and services they provide.
[Editor’s note: This is an excerpt of Planet Money‘s newsletter. You can sign up here.]
Skimping has a pejorative connotation, and it should be noted that not all companies are Cruella de Vil or Scrooge McDuck. Many businesses, especially small businesses, are struggling to keep up with soaring costs and expenses associated with the pandemic. They are struggling to find workers at the wages they were previously paying. And some companies may not be able to afford what it takes to recruit workers in today’s environment. However, whether it’s because they can’t afford it, don’t want to, or are greedy – instead of attracting workers with higher wages, many companies are reducing quality. of their services in order to remain profitable. And the Oxford dictionary definition of the word skimp seems to correspond to what they do: “spend or use less time, money or material on something than is necessary in an attempt to save.”
While it may hide in the shadows, make no mistake about it: Injury is a form of inflation. As with normal inflation, this means we are getting less for our money. And some argue that the government does not properly account for this type of inflation when analyzing official statistics.
Alan Cole’s Inflation Awakens
Alan Cole first woke up this summer with what we call the scam. He was on a road trip, driving from his home in Washington, DC to Vermont, to see his family. It was during those glorious weeks when most of us were vaccinated and life seemed to return to its normal course. You know, before the Delta variant put a stop to that.
“And I was on the New Jersey freeway, and I went through rest stops. And I noticed little things that were wrong,” Cole says. The stores had irregular hours. The napkin, utensil and condiment dispensers were empty. Fast food restaurants were not fast. He could see signs of asking for help everywhere. “The rest areas were struggling to maintain the same level of service as before.”
On his way back from Vermont, he stayed at a hotel in Poughkeepsie, NY. The next morning of his stay, he woke up to a “sad and pitiful” breakfast of mass-produced plastic-wrapped pastry, prepackaged grape bran, and lukewarm milk. The hotel was now skimping on its hot breakfast buffet as well as maid service for guests staying more than one night. This, Cole realized, was happening throughout the economy – and he began to think that the government was not fully capturing the decline in the quality of official statistics.
Cole is a former senior economist on the US Congressional Joint Economic Committee, where he advised Senator Mike Lee (R-UT) and wrote official economic reports. These days he is a writer at Full battery saving. For most of his career as an economist, he says, he believed that official government statistics actually gave the impression that inflation was worse than it actually was. He had thought that they did not take fully into account improvements in the quality of products and services when quantifying price changes.
For example, a few decades ago you had to shell out a lot of money to buy physical albums if you were a music lover. Now you can use Spotify and listen to virtually any album ever recorded in history for free or for a low monthly subscription. Some products, like electric skateboards, did not even exist in the recent past. The government tries to capture these innovations and product improvements with a process called “hedonic quality adjustment. ”
But Cole believed that the government, while keeping in mind the quality improvements, still failed to grasp how much better products and services were getting. He didn’t believe it was some sort of Illuminati conspiracy of Satan-worshiping pedophiles exploiting statistics. It’s just super hard to systematically account for quality changes when measuring price changes. How do you rate the invaluable improvements to our lives by things like Google’s search algorithm, the OneWheel electric skateboard or baguette slippers?
Poor inflation measurement has important implications. For example, it’s common to hear people claim that the real, or inflation-adjusted, wages of the typical American worker have stagnated over the past few decades. But if the government has overestimated inflation in its statistics, it means American workers’ paychecks are going further and living standards have improved compared to official statistics.
“I thought the world was improving, faster than our official statistics suggested, as the quality of the products was improving,” Cole said. “That’s what I’ve been saying for a decade – and I would have said it longer, but I’m not that old.”
But, while eating that pitiful hotel breakfast, he found that the opposite was happening now. Instead of not capturing improvements in the quality of products and services in economic statistics, the government now did not take fully into account the deterioration in quality. In other words, official statistics don’t show how bad inflation really is. Hotel prices, for example, may be the same or higher than before, but hotels skimp on the services they previously provided. “We’re getting less for our money,” Cole says. “And that’s basically what inflation is.”
You could attribute all of this to the pandemic and a slow adjustment to normal. And, says Cole, we should let executives and companies let go as they try to resolve a difficult situation. That said, we are now approaching two years of this pandemic and, he says, it is time to try to account for the degradation of quality – aka the scam – in the service industry.
Cole points to official government statistics which now indicate that the economy – adjusted for standard inflation – is bigger and more productive than it was in 2019. “This suggests that the goods and services we consume now are better than they were before the pandemic,” Cole said. “And I don’t think that’s true.”
For their part, the Federal Reserve and the Treasury Department claim that the strange inflationary economy we are seeing right now is transient. And they are probably right. We just hope that visitors to Disneyland and anyone upset about the shortness of breath will soon see their fairytale come to an end.
We reached out to Disneyland to comment on the tram closure and got no response.