• 7 days Visa, Mastercard Slump Amid Covid Worries, Regulatory Outlook
  • 7 days 3 Biotech Stocks Wall Street Loves This Quarter
  • 12 days Fintech Goes “Green”, Joining $30T ESG Boom
  • 13 days U.S. Cargo Theft Spikes Amid Huge Supply Chain Snarl Ups
  • 14 days Buybacks Are Back, But New Taxes Could Dull the Party
  • 15 days Don’t Be Fooled By Musk’s Twitter Performance
  • 20 days 3 Healthcare Sector Stocks to Watch Right Now
  • 21 days More Trouble Ahead for Supply Chain as Hackers Descend
  • 23 days Saudi Arabia To Invest $64 Billion Into Becoming A New Global Cinema Hub
  • 26 days The Cryptic Squid Strikes, Netting Scammers Nearly $4M
  • 26 days October Jobs Impress but Inflation Threatens Recovery
  • 27 days Another Round of ‘Meme’ Stocks Coming Our Way?
  • 28 days 2021’s Black Friday Bummer
  • 30 days Buy-Now-Pay-Later Is A Huge Threat to Credit Cards
  • 33 days Microsoft Passes Apple As World’s Most Valuable Company Amid Stellar Earnings
  • 34 days 3 IPOs from Big to Small Coming Our Way
  • 34 days Robinhood Investors Balk at ‘Meme’ Growth
  • 36 days $12M Seized in Massive US-Dubai Money-Laundering Raid
  • 37 days China Launches Digital Yuan As U.S. Dallies
  • 39 days ‘Unicorns’ Are Now Small Fry in the Era of ‘Decacorns’
Ireland Balks At Biden’s Global Tax Plan

Ireland Balks At Biden’s Global Tax Plan

"For decades, the US has…

American Wealth Is Built On Borrowing

American Wealth Is Built On Borrowing

Wealthy Americans are now funding…

Markets Unfazed As Inflation Hits 13-Year High

Markets Unfazed As Inflation Hits 13-Year High

Wall Street stocks have mostly…

Keith Weiner

Keith Weiner

Keith is founder of the Gold Standard Institute USA in Phoenix, Arizona, and CEO of precious metals fund manager Monetary Metals. He created DiamondWare, a…

Contact Author

  1. Home
  2. Markets
  3. Economy

The Overlooked Factor Contributing To Inflation


Last week, we wrote that regulations, taxes, environmental compliance, and fear of lawsuits forces companies to put useless ingredients into their products. We said:

“For example, milk comes from the ingredients of: land, cows, ranch labor, dairy labor, dairy capital equipment, distribution labor, distribution capital, and consumable containers.”

There are eight necessary ingredients, without which milk cannot be produced.

But, today, the welfare, regulatory, and litigation state forces dairy producers to add numerous other ingredients such as paying for food stamps for unemployable people in the inner cities hundreds of miles away from the dairy farm, tracking tags, giant wheelchair accessible bathrooms, etc. We called these useless ingredients.

Everyone uses the word inflation, when prices go up. Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon,” but we have just disproved the second half of his sentence, which is:

“…in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

Au Contraire, Monsieur Friedman. Rising prices can be produced by forcing producers to add more useless ingredients! Related: The Biggest Problem In The Cashless Revolution

They’re doing it to every industry. Not the Federal Reserve. It has nothing to do with the quantity of dollars. Yet everyone thinks the problem of rising prices is intrinsic to the dollar itself. If you participate in the gold or sound money communities online, you have seen many pictures of the eroding dollar, the shrinking number of goods in a shopping cart, nostalgic gas station signs advertising ¢20 a gallon, etc.

As an aside, inflation is a weak argument for the gold standard. We had quite a high rate in the 1970’s, but that was not (nearly) bad enough to make many people seriously propose to return to gold. Today’s much-tamer rate barely musters lip service even from the usual suspects. Wage earners care only that their wages go up as fast as prices—and when they don’t, they are mostly angry at their employers. Pensioners on fixed income care only about their annual cost of living adjustment (COLA), and if it doesn’t keep up, they get mad at the politicians who set it. The welfare classes care only that their EBT cards still work. And the one percenters are happy, because asset prices are rising much faster than consumer prices.

Has the price of a new Honda Accord has gone up a lot? In 2019, the base model starts at $23,720 without options. In 2018, it was $23,570. It has gone up by $150, or 0.6%. We have no idea what new useless ingredients have been added to the 2019 model.

In 2009, the car cost $20,905. Thus, the 10-year increase was $2,815, or 13.5%. We don’t know exactly what the 2019 Accord has, that the 2009 did not, though we note that it had a 4-cylinder engine producing 177 horsepower. The 2019 has 192 horsepower, or 8.5% more.

This raises the idea of hedonic adjustments. For example, the 2019 Accord is a better car (and not just with more power) than the model ten years prior. A hedonic model would attempt to analyze all of the improvements, to determine what part of the $2,815 price increase was due to improvements in the car, vs. how much was due to inflation.

An analysis of useless ingredients may seem similar to hedonic adjustment. Both attempt to break the price increase into a monetary and a non-monetary component. In our observation, it is pretty hard for most people to get their heads around hedonic adjustments. Many people openly scoff at it, as mere Fed propaganda.

The concept of useless ingredients may be an even harder sell. The consumer seems to be getting nothing, yet the price is higher. Therefore, he insists, purchasing power is down. We insist that the dollar is purchasing just as much as before, only it’s purchasing stuff that buyers don’t value. And even stuff about which buyers do not know.

The problem with hedonic adjusting is that it’s inherently subjective. How much is 15 more horsepower worth? How much did it cost? It is easy to assume that better algorithms in the engine computer may increase horsepower without increasing costs. This may even be true in many cases.

Related: Positive Economic Data Weighs On Gold

Adjusting for useless ingredients is more straightforward, at least in theory. Assuming producers can account for costs, we could see how much each added useless ingredient adds to the final price.

In practice, it would get tricky. In our milk example, the dairy producer must buy containers to put the milk in for retail sale. The container producers are also forced to add useless ingredients, and hence their prices are going up also. The dairy producer would need that data, in order to roll it up into their own useless ingredient component.

We would love to see the Useless Ingredient Adjusted Consumer Price Index (UIA-CPI). It would certainly help lay to rest the undead creature known as the Quantity Theory of Money. Which even today plagues students of economics, who see rising prices as Milton Friedman did. Seeing the real culprit, printed in black and white every quarter, would be a good thing for the field of economics.

We are reluctant to call for the Bureau of Labor Statistics to calculate UAI-CPI (even with a catchier name), for one simple reason. The last thing we want is a new regulation that forces producers to report on all useless ingredients, assigning a cost to each. This reporting would itself be yet another useless ingredient added to the production of cars and milk!

Perhaps large companies already gather all the data necessary to calculate the cost of useless ingredients for their products. If so, we would encourage them to publish it.

The only catch is that most people would take exception to our phrase “useless ingredients”. They might reluctantly concede that the cost of compliance is rising. But they would quickly retort that we need all these ingredients. Otherwise, we would pharmaceutical companies would poison their customers, carmakers would maim, and banks would impoverish them, for profit.

As always when it comes to government intrusion into the market, most people will defend it. Not only defend it, but they often reject concepts and idea that threaten to shed light on the costs of such intrusion. Sometimes, they want not to know.

We would bet an ounce of fine gold against a soggy dollar bill that advocates for the disabled want you not to know how much cost is added by ADA-compliant bathrooms. Every monger of every regulation prefers to keep the cost hidden, smirking as everyone’s ire is misdirected at the Fed (ironically, just as the Fed is smirking that workers misdirect theirs at employers).

In case there is any doubt, we will add this quote from Bastiat:

“Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all. We disapprove of state education. Then the socialists say that we are opposed to any education… It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain.”

That is precisely our view of employers accommodating employees. Most employers would do what they could (without adding ever more useless ingredients to their products). Most people will bend over backwards to be kind. That’s not what useless ingredients are about. Which is why they have to be forced on businesses by government. No business would choose to serve its customers less and less, while doing useless work that they don’t want.

Anyways, we’ve beaten this topic to death. The purpose, behind the humor and the moral of the story, is that there is a great misconception of monetary economics. To understand useless ingredients is to see the misconception: the value of the dollar is not 1 / prices.

By Keith Weiner

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment