A friend has stopped buying paper towels. Not for environmental reasons. He just finds them unaffordable now. Curious, I took a closer look.
Sure enough, in my own buying history, I’ve documented a 70 percent increase in prices over 16 months. Others are seeing this too and balking at spending $2.50 per roll. At these prices, it makes more sense to reuse cotton kitchen towels for quick clean-ups. This is a consequence of substitution in light of price changes.
What do we find when examining official data (Producer Price Index, or PPI, which is more accurate than Consumer Price Index, or CPI) on wood pulp products? A huge increase in 2021–23, followed by a crash and then a small increase, for an overall increase of 50 percent since 2020. That’s substantial and serious and clearly gets passed on to consumer products. The CPI doesn’t reflect that, however.
We are seeing this even more. People are shifting their consumption regardless of the claims that inflation is gone. We see our bills and know otherwise. Therefore, people are substituting meat for pasta and rice and brand-name items for store brands and generics. The thrift stores are doing bang-up business, and people are searching for more ways to cut costs.
This has a powerful effect on a whole generation. It affects what we consider to be valuable versus that which we consider trash. I never imagined that I would save plastic food containers for storage, but I’m leaning this way now. I’m sure you can come up with your own examples of how your personal estimation of value is changing.
A quick story. About 20 years ago, the elderly lady next door died and her extended family came to clean out the house. They found a room that was oddly filled with containers, mostly aluminum pie pans. They were astonished. But as we talked, I made the case for her seemingly strange habit. She grew up in the Great Depression and then faced wartime rationing. This is what formed her sense of what was and wasn’t valuable. She held onto that her whole life.
This is not eccentric or crazy. It’s just a valuation estimate based on an older sense of supply and demand that had not been updated in light of changes. To her, it was simply unthinkable to throw away a good pie pan. Back during World War II, the Office of Price Administration issued coupon books for aluminum. If you wanted a pan or foil, you had to present a coupon before you could get it.
Such an experience leaves a permanent impression. This lady never let go of it. We only think it is a bit nutty because, during those years, aluminum was ubiquitous. Once used, it all seemed like trash. Will that always be true? Not so much. I’m looking now at the one-year increase in aluminum prices and see that they are up 178 percent. You see this in the price of foil.
In other words, the bad old days could, in fact, return.
Another quick story. When I was fresh out of college and entering a journalism program in D.C., I was asked to give the students a lecture on basic economics. It was my first time to do so. I thought about what I should say and decided to focus on the price system as a source of our knowledge of how the world works and the way in which it imposes rationing on our use of resources and our daily habits in ways that don’t always enter our consciousness.
The theory itself comes from F.A. Hayek, but the example I used was, ironically, paper towels. Here, we have a product that begins with a seedling of a tree that grows over many years. It’s cut down and pulped, then bleached, then formed into thin sheets, cut and packaged, and then transported to the store. One might suppose that given all that goes into the creation of a single paper towel, it would be far more expensive.
In those days, the price was extremely low. No one thought a thing about using as much as we wanted and then throwing it away. But I warned that if paper towels went way up in price, to $5 and $10 per roll, we would either stop buying them or use them far more carefully, even drying them out between uses and reusing them.
My young colleagues were a bit incredulous at my point, but I added to it. There are conditions under which we would simply stop driving, stop buying clothing like it is disposable, stop drinking soft drinks and choose water instead, and cling to products such as shopping bags and aluminum tins because they were considered extremely valuable.
My central point was that prices convey information to us to help us manage our own uses of resources. This is all to society’s benefit. It happens without any central planning but only in response to conditions of supply and demand.
I cannot remember if my little lecture had any impact. But I do find it intriguing that my odd scenario in which paper towels become extremely valuable, to the point that we conserve them, is coming true today. To me, this is a very bad omen of our future.
We are surrounded by goods and services born of the great prosperity from 1950 to 2020. Yes, there were bumps along the way: the inflation of the 1970s, the banking busts of the late 1980s, the supposed dot-com bust of 2000 (which was actually no big deal), and the financial crisis of 2008.
But what we are going through right now has no precedent in any living memory. The inflation is easily the worst in 40 years but may be the worst since the Civil War. Crucially, it is combined with a dramatic slowing or falling in output, along with a labor crisis. An accurate description would be inflationary depression, arguably worse than the 1930s.
Why worse? Because the mitigating factor in the 1930s was that the dollar was growing in value. Therefore savings would yield more purchasing power over time. Right now, we’re experiencing the opposite. Money in the mattress is losing value, while money in the bank makes a positive return but only barely.
None of this is being reported properly. The official data is easily debunked, and yet reporters on the business page simply do not bother.
Is there any precedent for this? Sure. Back in the 1930s, Hollywood joined the New Deal campaign to get everyone to believe that things were getting better and better. The song “We’re in the Money” came out in 1933. The words: “We never see a headline about breadlines today; And when we see the landlord we can look that guy right in the eye. We’re in the money, come on, my honey; Let’s lend it, spend it, send it rolling along!”
You can go through your own shopping history now because of digital archives. You can find inflation rates in your own history that range from 30 to 100 percent or more over two and three years. Once you use these figures to adjust income, sales, inventories, and output, we are in solid depression territory.
When will this become obvious? It’s obvious to most people right now, but they hear from major media that everything is just fabulous. They are therefore encouraged to think that their economic plight is theirs and theirs alone. Hence, people blame themselves rather than bad monetary, fiscal, and regulatory policy.
Still, 10 years from now, it will be very obvious what happened. Nothing can stop reality from asserting itself. You know it in your own life. Maybe it is time to start saving those pie pans. I hate to say it but rationing could come back, and it would be easier than ever this time.
