My brain has recently been focusing on money. I mean, I'm pretty good with numbers. I enjoy math, and I like to figure out min/max statistics for online role-playing games I play in order to create the most effective character in most situations.
The other day, I thought, "why not apply that same mentality I use in gaming to my life?"
I earn very nearly the same amount of money today (within 3%) in 2007 that I earned in 2001. I heard a fellow on a talk-radio show indicate that government statistics of 2%-4% inflation per year were not even close to accurate, and actual inflation rates if we figured according to 1970's-era and earlier calculations would tell us a story of greater than 10% inflation since 9/11/2001.
So I decided to apply my puny little brain and think in terms of "How much can I buy for my dollar?" I mean, I make almost exactly the same amount in dollars today that I did six years ago. If we look at just the last five years, from, say, September of 2002 to September of 2007, I should get a good idea of what the actual inflation rate is.
All figures are with annual compounding. Monthly/weekly/continuous compounding figures are very slightly lower.
|Item||September 2002||September 2007||Inflation|
|2,000 sq ft townhouse (mine)||$100K||$150K||8.4%/year|
|1 gallon of 2% milk||$2.14||$3.54||10.6%/year|
Based on this small sampling of things the average consumer might buy -- investing in gold, buying fuel, buying a house, or picking up a gallon of milk -- I would also submit that a 2-4% inflation rate is overly optimistic. It certainly feels like 10% or more. Simple fact is, my dollar doesn't seem to go nearly as far as it did five years ago. In fact, five years ago my salary felt generous, enough to afford plenty of luxuries. Today, it barely covers expenses.
Admittedly, we have two extra mouths to feed. So that skews my sampling-size-of-one.
What I found interesting is how hard it is to get data on average consumer items. Like, what if I wanted to check the new retail cost of a Toyota Camry with standard options in 2002 versus 2007? Good luck digging that up. Or what about the cost of a non-king-size Snickers bar in 2002 versus 2007? Yeah, no luck there either. Cost per kilowatt-hour of electricity?
It seems in so many of these things, we have an awfully short memory... and manufacturers or providers of goods and services don't seem to go out of their way to point out how much more their stuff costs.
Nifty little inflation calculator: http://www.westegg.com/inflation/
Unfortunately, at least for my relatively small sample size above, it's totally off-base. This next one offers a more usable output, indicating inflation over the past five years has been around 14%-15%... a figure I totally agree with, and which is totally at odds with the figures put out by the administration.
(EDIT: I totally mis-read their figures. They are claiming a total inflation increase of around 14%-15% from August 2002 to August 2007, which is bogus. It's a 10%-15% compounded... So these guys are using official statistics, which I suspect are being intentionally manipulated to give citizens overly-optimistic inflation data.)
Also a nifty time-value-of-money calculator which will solve for any of the variables (like interest rate):
I have a conclusion. I am being misled about inflation by those in who's best interest it is to mislead me. The actual inflation rate over the past five years has been 10%-15% per year, which is a level unheard-of since the 1970s. From everything I see, it's going to get much worse before it gets better, as we have to increase taxation to pay the bills due on our simultaneous wars in Iraq and Afghanistan, unfunded school mandates in "No Child Left Behind", and initiatives like the RealID card.
From 1972-1979, the US dollar lost 2/3 of its value. I predict the same, or worse, for 2007-2014. Time for me to find some overseas shelters for my meager savings.
Then again, I'm a UNIX admin, not an economist. Imagine that you earned $65,000/year in 2002 and didn't get a raise for five years. Based on the cost of a gallon of milk, in 2002 dollars, you're earning only $39,277/year today.
What do you think? Time to panic? Or is that time long since gone? Or are my figures just way, way off?