Innovation, Inflation, Potato Chips, and You

Lew Rockwell blogs about an objectionable piece he saw on The Today Show:

It was a commie-style 2-minute hate on the evil of companies that trick consumers. How? By reducing the size of their packages while maintaining the same price. There was no mention of Federal Reserve inflation, of course. As prices climb, and companies are forced to raise their prices, cut the unit size of products, or lower quality[.]

Lew Rockwell is right. I've noticed slightly smaller packaging and slightly higher prices over the years, but never supposed the food producers were unethical because of it. Actually, this practice could be much worse than it is.

As a junk-food consumer, I remember the price of a 15 oz bag of potato chips in 1990 to be $2.99. As time went by, I noticed the size of the bag shrink and the price gradually rise. I haven't purchased potato chips in a while, but the last time I looked,  an 11.5 oz bag was priced at $3.19.

This means . . .

  • In 1990, five ounces of chips cost $1.00
  • In 2010, five ounces of chips cost $1.40

That doesn't look so bad. According to the DollarTimes calculator, one 1990 dollar had the purchasing power of $1.71 in 2010 dollars. Junk food price inflation - at least potato chips - wasn't as bad as general inflation.

And this is consistent with general food consumption. DailyMarkets.com provides a graph showing a steady fall in food prices as a percentage of income since 1990 - actually, since the late 1940's.

Yes, prices increased, but incomes increased even more. Thanks to market innovation and free trade, food prices are much lower than they could have been.

Time will tell if this trend of falling food prices (relative to income) will continue. The Federal Reserve's latest round of "quantitative easing" (that is, "the printing of money") may cause food prices to shoot up if the economy turns hot again. Also, the bogus "food safety" bill that passed in December will add compliance costs to food production, which may drive up prices even more.

But for the last sixty years in the United States, human innovation in the still-generally free American market has allowed prosperity to far outsrip the worst the regulators, inflators, and taxers have thrown at us. As economist Mark Perry has said, "just being alive today in America, you’ve already 'won the lottery of life.'”