Bursting Bubbles

In case you haven’t been paying attention, the economic news in the tech field isn’t exactly great. Recently, Microsoft announced plans to lay off 10,000 workers, and Alphabet, the parent of Google, disclosed that it would be handing the pink slip to 12,000 of its employees. Amazon also has announced sweeping job cuts. By some accounts, almost 50,000 people have been laid off from their jobs in the tech industry already in 2023–and we aren’t even through the first month of the year. That follows a 2022 in which about 100,000 employees of private and public tech-related companies are estimated to have lost their jobs.

This shouldn’t really come as a surprise to anyone with some seasoning. The tech industry grew exponentially during the early days of the pandemic, as the world shifted more to on-line commerce, and it was predictable that, as conditions changed and economic cycles occurred, there would be some retrenchment. What’s interesting, though, is that some of the tech leaders apparently didn’t see this entirely predictable result coming: they were confidently predicting that there had been a permanent paradigm change and the growth would continue, as one recent article notes.

And the company bigwigs weren’t alone in this view. Some young tech workers reportedly are shocked that their cutting-edge companies could–and would–lay them off; they thought they were set for years to come. Interestingly, however, their older and more experienced colleagues aren’t surprised, because many of them have been laid off before in prior tech boom-and-bust cycles.

It’s a valuable tutorial for everyone, although people seem to quickly forget the teaching: economic cycles are inevitable, retrenchment typically follows rapid growth, it’s wise to build some bad news into your business and personal planning, and confident predictions of impending future success frequently turn to ashes in the mouths of the know-it-alls who voiced them. A dose of humility and rationality isn’t a bad thing for tech company leaders–and those shocked young workers have just received a valuable life lesson that they probably will never forget.

The Insider Versus The Average Joe

Something weird happened in the markets earlier this week. About 60 seconds before the November Consumer Price Index data was released, there was a sudden surge in trading of stock futures and Treasury futures–both of which inevitably would be affected by the report that the CPI for November was a bit lower than what economists had forecast. You can see the spike in trading in the chart above, published by Bloomberg in its story about the trading that occurred only moments before the release of the report.

It’s good news, of course, that the November CPI report indicates that inflation appears to be cooling, and we should all hope that trend continues. But the jump in trading activity in the minute before the CPI report was released is obviously suspicious, and suggests that someone who received the report prior to the release tried to profit from the good news. (In fact, the activity sounds vaguely like the plot of the movie Trading Places, where the Duke brothers tried to make a killing from getting an early copy of a government report, only to be foiled by the Dan Ackroyd and Eddie Murphy characters. In this case, however, Dan and Eddie weren’t around, and neither was the guy in the gorilla suit.)

The Biden Administration denied that the White House leaked the report, and downplayed the trading data as “minor market movements”–when, as the Bloomberg article linked above points out, it clearly was nothing of the sort. The Bloomberg article notes: “over a 60-second span before the data went out, over 13,000 March 10-year futures traded hands (during a period when activity is usually nonexistent) as the contract was bid up.” And even if we accept that the White House didn’t leak the report, it’s obvious that something happened that requires an investigation, to see who was making those trades, and why.

Under these circumstances, in fact, I would argue that an investigation is mandatory. Trust in the markets is a delicate thing, and an insider trading scandal coming on top of the stories about the inner workings of now-collapsed FTX doesn’t exactly instill confidence in the integrity of the markets. If there is no investigation or prosecution, it will go down as just another example of the fundamental difference between insiders who get to profit from a sure thing and the average Joes who must accept the ups and downs in the accounts that hold their hard-earned retirement savings.

Starbucks On Strike

Some Starbucks workers went on strike today. About 2,000 workers in more than 100 stores in 25 states (out of more than 9,000 (!) Starbucks-owned locations nationwide) walked out. The strike is part of an effort to unionize Starbucks that began last year. The advocates for unionization are seeking higher wages and better working conditions, which would include Starbucks hiring more staff people in its many stores. Strikers say they also walked out to protest anti-union retaliation.

The savvy strikers timed their walkout to occur on “Red Cup Day,” when Starbucks apparently gives customers a red cup that allows them to get free refills of the sugary holiday concoctions that pass for coffee at Starbucks. Workers say it is one of the busiest days of the year at the coffee giant. (I wouldn’t know this because I haven’t been to a Starbucks to buy “coffee” or other pumpkin spice-flavored drinks since, well, ever.)

I have belonged to multiple unions during my working career, and I think unionization efforts and concerted action are important parts of the freedoms (such as freedom of speech) that we enjoy as Americans. I also think such activities help to set the real market price for labor. Sometimes strikes cause employers to recognize that workers really are more valuable than the pay they have received; other times (as in the ill-fated Air Traffic Controllers strike back in the early ’80s) the union advocates realize that they have overplayed their hand.

It will be interesting to see how the Starbucks unionization effort plays out. There is no better way to find out how much those baristas are really worth.

Risky Business

2022 hasn’t exactly been a banner year for cryptocurrency. In the spring, the crypto markets experienced a spectacular crash, and last week a leading crypto exchange platform, FTX, slid abruptly into bankruptcy amid questions about its operations, liquidity, and use of funds. The SEC and Department of Justice are reportedly investigating whether the company’s sudden collapse involved criminal activity or violations of the federal securities laws.

The demise of FTX was so quick and catastrophic that the company’s founder and CEO, Sam Bankman-Fried, is reported to have lost 94 percent of his net worth in a single day. The rise and sudden fall of FTX may well rank right up there with Enron in the riches-to-rags business bust category. But there’s an even more ironic twist to the FTX failure: only a few months ago, during the 2022 Super Bowl, FTX ran a commercial where a skeptical Larry David, with a record of rejecting inventions like the wheel and the light bulb, also rejects the idea of investing with FTX, which is presented as “a safe and easy way to get into crypto.”

As is always the case when a high-flying entity suddenly crashes and burns, there are ripple effects from FTX’s spectacular failure. For example, the Ontario Teachers Pension Plan, the third-largest pension plan in Canada, disclosed last week that it had invested $95 million in FTX entities. (Fortunately for Ontario teachers, the investment apparently represents only a tiny fraction of the money invested by the Plan.) Other entities also had investments in FTX. One of them, a venture capital firm called Sequoia Capital, announced that it will mark down its $214 million investment in FTX to zero. Sequoia told its investors: “We are in the business of taking risk,” and “[s]ome investments will surprise to the upside, and some will surprise to the downside.”

Sequoia’s observation is, of course, true–if the investor understands, as Sequoia did, that cryptocurrency is a risky investment. The problem is that crypto advocates keep trying to present it as something else, as FTX tried to do with that in retrospect hilarious Larry David commercial. If the everyday investor is paying attention, the FTX collapse will make it harder to sell cryptocurrency as the next best thing to the light bulb. And we might want to check to make sure that our pension plans or mutual funds have learned that lesson, too.

Not The Next Big Thing

Economic theory teaches that stock prices usually are brutally honest. When investors are deciding whether to put money into a company or venture, social niceties typically go out the window, and investors–particularly the professional money managers–take a hard look at the company’s products and business plan and make an unvarnished judgment about whether they will succeed or fail. If the product line looks like a winner, buy decisions will follow; if products and sales are disappointing, the sell sign flashes.

The stock market’s honest judgment is saying something is wrong at Meta, the parent company of Facebook, Instagram, and WhatsApp that is trying to introduce us to the “metaverse”–the virtual world pictured above. And the consequences have indeed been brutal: Meta closed at $323 a share on February 2, 2022 and $97.94 yesterday. Yesterday alone, the stock price fell $31.88 a share, losing 24.56 percent of its value, and the stock information page linked above says Meta’s “technicals” put the stock down into the “strong sell” category. In short, if you’re a shareholder in Meta, you’ve had a bad year, and apparently some investors have decided enough is enough.

Why has this happened? Some observers believe that Mark Zuckerberg, the Meta kingpin whose metaverse avatar is seen above, has unwisely focused all of the company’s attention on the metaverse, rather than protecting and nurturing the company’s core assets, like Facebook, which are facing their own problems. And the effort to summon the future in the form of the metaverse hasn’t gone well. So far, at least, people haven’t jumped at the chance to don virtual reality headsets, create an avatar of themselves, and interact with other people in interactive virtual spaces. The fact that the headsets are expensive–Zuckerberg recently introduced a new headset that goes for $1,500 a pop–and the virtual reality graphics don’t look all that compelling isn’t helping. One of the recent developments announced by the company, that metaverse characters will now have legs, sounds like a funny parody of a bad TV commercial. “Metaverse characters–now with legs!”

Meta’s struggles reveal a basic truth about technology companies: sometimes the tech product is a huge hit, but many times it isn’t. For every smartphone or personal computer that are wild successes, there are other devices or concepts that crash and burn. And it looks like the metaverse that Meta had invested billions in developing might just fall into the latter category. A recent article in Forbes expressed the point this way: “The entire problem with Mark Zuckerberg’s fascination with the metaverse is that he’s trying to force a sci-fi reality to happen long before the rest of the society wants or needs it to actually exist.” 

A Monte Carlo Kind Of Year

Financial planners like to do what they call a “Monte Carlo” simulation to test the strength of their clients’ retirement assets. They reason that simply taking the average return on stock and bond indices over the past 50 years and applying those numbers to yield a straight-line result doesn’t paint a true picture, because the markets go up and they go down, rather than delivering a rate of constant return. Monte Carlo simulations use random elements to build in years with different degrees of negative and positive performance, including during the years when you might be selling some of your portfolio to fund your retirement. The underlying concept is that if your holdings can weather the impact of a few really bad years, they will be a more reliable platform on which to build your retirement plans.

2022 has been the kind of year that Monte Carlo simulations dream about.

It’s hard to overstate just how bad this year has been in the financial markets. It is the proverbial “black swan” year, where every potential target for investment has turned to mud. As CNBC reported recently, the S&P 500 index is down 24 percent for the year, and the Bloomberg U.S. Aggregate Bond Index is down 16 percent. If both stocks and bonds finish the year in the red, it will be the first time that has happened in decades.

That’s not supposed to happen. Every financial planner advises clients to follow a mixed portfolio strategy, because bonds are supposed to hold or increase their value if stock prices are falling. All told, CNBC says this has been the worst year in the financial markets since 1969–when Richard Nixon took office as President, the Vietnam War was still raging, the Beatles were still recording music, hippies roamed the country, and Neil Armstrong set foot on the Moon. In short, it has been a long time since the markets were this bad.

The CNBC article notes that these terrible black swan years tend to happen when multiple negative economic factors converge. This year, those factors include persistent inflation, rising interest rates in response to the inflation, and a recession that is either here or on the immediate horizon–the financial types can’t quite decide which. You could also add an energy crunch, supply-chain issues, a volatile housing market, and a shooting war between Russia and the Ukraine to the mix of troubling developments.

The “Monte Carlo” name is supposedly based on the casinos in that tiny nation, where random chance plays such an important role in whether you win or lose. This year, the “Monte Carlo” name suggests that investing has been a gamble–and thanks to all of the negatives the dice have come up snake eyes.

Hoping For A Warm Winter

There are dire forecasts for the winter in Europe. The forecasts aren’t about the weather, specifically, but more about the ability of Europeans to stay warm and European factories to operate when the temperature drops and energy supply problems reach a crisis point.

An article recently published in Fortune outlines the issues. Many European countries made the decision to rely on Russian natural gas as one of their primary energy sources. When it invaded the Ukraine, Russia provided 40 percent of the natural gas for the 27 countries in the European Union. Some European countries then responded to the invasion by stopping purchases of Russian natural gas, while others were cut off by Vladimir Putin.

Obviously, losing 40 percent of a primary energy source–natural gas is the second most popular energy source in Europe behind oil–puts a dent in your energy policy. And, as the Starks are fond of saying, “winter is coming.” Prices have skyrocketed to historical record levels. The cost of electricity has already tripled in some places, and governments are scrambling to reopen coal-fired and nuclear power plants that were shuttered in moving toward “green” energy. The EU countries also are looking to other, non-Russian sources, but they don’t yet have the infrastructure, such as pipelines and processing terminals, needed to use the alternative suppliers. Building that infrastructure can’t happen overnight.

That means there is an immediate energy crunch, and the experts consulted by Fortune paint a bleak and alarming picture of what might happen when the snow falls. They say that world energy supplies are so precarious right now that any increase in demand could cause even bigger price spikes, mandatory rationing, and mass shutdowns of factories and businesses, “devastating European economies with a wave of unemployment, high prices, and in all likelihood public unrest and divisions between European nations.” That’s petty scary stuff. Some European factories have already stopped or reduced operations, and some countries have already instituted some energy conservation policies to try to preserve supplies in advance of the winter. The rubber won’t really meet the road, however, until the cold weather hits and energy demand increases in response.

So let’s all hope that the European winter is mild, and our friends overseas aren’t left to shiver in the cold and dark. But praying for warm weather isn’t exactly sound energy policy. What has happened in Europe should cause our government, and every government, to take a careful look at their energy policies and focus on making sure that energy supplies are secure. That means reducing dependence on unreliable energy sources–like Russia–and taking steps like building nuclear power plants and pipelines to provide domestic sources of energy that won’t be turned off when winter comes.

Californinomics

Inflation has affected everyone in the country this year, but it has had a particularly acute impact in California: according a recent article published by a local Los Angeles TV station, food prices are up 13.5 percent and energy prices, including gasoline, have shot up 25.6 percent. With price increases like that, it’s not surprising that the article also reports that inflation is a significant and growing concern for citizens of the Golden State.

California has come up with a very California-like response to the inflation problem. The state is sending out what state legislators are calling “inflation relief” payments pursuant to a tax refund program that was enacted over the summer. All told, some 23 million Californians are expected to receive payments that will range in size from $200 to $1,050. The total cost of the inflation relief package is $17 billion, which will come from a state tax surplus fund. Governor Gavin Newsom said the payments will result in “more money in your pocket to help you fill your gas tank and put food on the table.”

Is sending money out to millions of Californians with the idea that they will promptly spend the funds a good idea? Critics say the plan is “economic illiteracy” that will feed the inflationary spiral by stimulating demand–and, according to the law of supply and demand, when demand increases and supply remains static, prices will increase. If 23 million Californians suddenly are ready to spend their inflation relief payment, it’s not hard to see that having a meaningful impact on the demand side of that basic economic equation.

Inflation is a concern for everyone, but sending out checks doesn’t seem like a wise, long-term, sustainable approach to the problem. The latest inflation data, for a rolling 12-month period that includes September, is supposed to be released this week. If it shows that the inflation rate has increased, will California simply shell out additional payments?

Hot, Then Not

The classic real estate saying is “location, location, location.” The 2022 supplement to that adage might be “timing, timing, timing.”

For the last few years, we’ve been hearing about how hot the housing market has been in many places. Now there are many signs that the hot markets across the globe are abruptly cooling off, according to a Bloomberg article. It reports that increasing costs of borrowing, with central banks raising interest rates sharply to try to deal with inflationary pressures, are causing potential borrowers to think twice about paying big bucks for houses. As a result, houses in the formerly hot markets are looking at double-digit percentage declines in asking prices, and economists are forecasting a significant housing market downturn in 2023 and 2024. That’s a real problem for those people who have a significant chunk of their assets tied up in their houses–especially if they’ve paid “hot market” prices for them.

Yesterday’s consumer price index report in the U.S., which showed inflation is still far above targets, won’t help matters. The higher-than-forecast inflation numbers, notwithstanding recent declines in fuel prices, not only caused the stock indexes to tumble dramatically, it also is expected to convince the Federal Reserve to ratchet up interest rates again next week to try to wring the inflation out of the economy. That move would increase borrowing costs still farther and put even more pressure on potential buyers who would need to finance any home purchase. As interest rates rise, those potential buyers become more and more likely to stay put in their current housing and stay out of the housing market.

History teaches us that hot sellers’ markets don’t stay hot forever, and yet when such hot markets are here, some people expect them to continue indefinitely. It doesn’t take much for a sellers’ market to turn into a buyers’ market–especially if you are a buyer with ready cash who doesn’t need to take out a mortgage to make a purchase. It looks like that is the process that is underway right now, and as long as inflation remains high, that shift is likely to accelerate.

Bad Reviews

Stars of stage and screen have been dealing with bad reviews for a long, long, time. For restaurants, coffee shops, and bars, it’s a more recent phenomenon, thanks to on-line rating services. And now the ratings game is being applied to pretty much every business and profession you can think of, including service industries, teachers . . . even lawyers.

Bad reviews are so commonplace that there are collections of “hilariously bad reviews” on-line–like this one. But while outside observers might chuckle at an internet reaming, every one of those horrific reviews left a business owner, a cook, or a server really smarting, and worrying that the review will seriously harm their business. In fact, studies show that people do pay attention to reviews in deciding where to eat, drink, or hire an electrician, and a crushing comment might just make a potential customer decide to go elsewhere.

What should you do if you get a bad review? One PR agency offers tips about responding to reviews here. Their main teaching is to respond promptly and constructively to all reviews, good and bad, and view the review and response process as an opportunity to build customer loyalty and show that you value feedback. That means not replying to a bad review with flamethrower comments of your own, but instead responding in a way that shows that you’ve taken the criticism to heart, are glad the reviewer spoke up, and hope that they will come back to give you another chance after you’ve implemented improvements.

Nobody likes to get bad reviews, but it’s a reality of our modern world. My guess, too, is that pretty much every business, no matter how good they might be, gets ripped by someone who visited on an off-day or just has a negative attitude in general. Learning how to respond to the bad reviews is as much a part of operating a successful business as developing your business plan or setting up your bookkeeping system.

Life Habits Of The Rich And Famous

CNBC recently published an interesting article by a writer who interviewed 225 millionaires to evaluate their habits and analyze common themes. He found that the interview subjects all fell into one of four categories: “saver-investors,” “company climbers” who work for a company, climb the corporate ladder, and ultimately secure a senior-level position, “virtuosos” who are very good at what they do and are paid accordingly, and “dreamers” who follow their passion and do things like form their own businesses or write books.

The most common habit people in the four groups shared–besides working at something, which obviously is the basic foundation for each of the groups–was the habit of saving money. 88 percent of the millionaires interviewed said saving was a key part of their financial success. And the savings process itself involved three common themes: automatic saving of a significant part of income, investment of their savings, and frugal lifestyles. Reaching millionaire status using these techniques can be a slow process–it took the millionaires who were interviewed between 12 and 32 years to accumulate their nest eggs of between $3 million and $7 million–but the process worked.

There are a lot more millionaires now than there were during the era of Thurston Howell III and Lovey, the “millionaire and his wife” on Gilligan’s Island. It is estimated that 20 million Americans have reached millionaire status, producing 13.1 million households–more than 10 percent of the total number of households in the U.S.–that have assets of at least $1 million. About 20 percent of the millionaires inherited their wealth, but the rest made their money, in whole or in significant part, through their own effort and hard work.

Not everyone wants to become a millionaire, of course–but if you do, the statistics show that it is a reachable goal that can be achieved with work, a long-term focus on saving and asset growth, prudence, and the good luck to avoid serious illness or unprovoked job loss.

Unpaid Mortgages In China

China and its economy are notoriously difficult to analyze and evaluate. With its mix of government control and closely held data, China’s true economic performance is a closed book, making third-party analysis often seem like little more than guesswork. Reports on issues in China therefore should be taken with a huge grain of salt.

With that caveat, Bloomberg recently published an interesting story about unpaid mortgages in China that could have significant consequences akin to the subprime mortgage crisis in the U.S. that triggered the Great Recession. The real estate sector is one of the prime drivers of the Chinese economy, with construction projects and home sales being responsible for about a quarter of China’s gross domestic product, so anything that affects that sector is worthy of note.

Lately, the Chinese real estate segment has struggled in the face of a combination of issues. Developers have produced only about 60 percent of the homes they have presold to homebuyers, continuing COVID issues have caused a decline in demand for new projects, property prices in some areas have plunged, and some debt-ridden real estate developers have been unable to complete projects and have begun to default on their debts. Some homebuyers are now refusing to pay on their mortgages, either because developers have not completed the projects, or because the mortgages are for amounts greater than current property values in view of the recent decline in prices, or both. The numbers involved so far aren’t enormous, but the underlying issue is whether such a development is the first sign of a more significant trend.

China watchers are always carefully scrutinizing the meager available data about what is really happening in the world’s most populated country, and this will be an area that commands attention going forward. Our own painful experience from the 2007-2009 time period teaches what can happen when mortgages go unpaid, the real estate market craters, and what banks had considered to be assets turn out not to be assets at all. If that happens in a huge economy like China, it’s going to leave a mark on the world economy, too.

Share And Share Alike

Are there limits to the “sharing economy”?

This week the Washington Post ran an article on people renting out their backyard swimming pools by listing them on Swimply, which the article described as the “Airbnb of aquatic recreation.” The article talked about how much families enjoyed frolicking for a few hours in a nearby, rented pool on a hot day, without having to worry about the cost and upkeep and maintenance and hassle of owning their own pool. And, of course, pool owners can make a nice amount of money on the side by renting out their backyard oases.

With swimming pool rentals, we seem to be exploring new frontiers in the “sharing economy.” There have always been rentals of vacation houses; apps like Airbnb just moved the process on-line and made finding and booking the rentals a lot easier. Similarly, Uber and other ride-sharing apps built on the existing taxicab concept. But renting out your backyard swimming pool while you are there seems like a distinctly novel step. Some might say it seems to cross a clear personal privacy line; others presumably just accept it as the logical next step in our increasingly gigged-up economy.

People can do what they will with their houses–within the framework set by zoning codes, homeowners association rules, and the need to keep neighbors from getting out the torches and pitchforks, of course–and if they want to rent out their pool, why should we care? Speaking for myself, I wouldn’t want to rent out my pool for a few hours; I wouldn’t feel comfortable with it, and wouldn’t want to bear the liability risks or the clean-up duties. Nor would I want to rent some stranger’s pool on a hot summer’s day. It seems different from swimming in a hotel or country club pool; those pools are designed to accommodate visitors and are professionally maintained for that purpose, whereas renting somebody’s personal pool means you are going to a residential neighborhood, crossing a stranger’s lawn, and invading their space. The fact that you are doing so with their permission for a fee makes it legal, but it doesn’t make the concept any less weird in my view.

I wonder if there are any limits to the sharing economy. Do people whose homes have high-end kitchens stocked with the best appliances and cookware rent them out to aspiring chefs? Do people with fancy gardens offer their fragrant and flowery comforts for a fee to people looking for a new place to hold a bridal shower or a genteel tea party? Are yard tools, bicycles, lawn tractors, and family pets available for a fee?

Homes used to be viewed as the inviolable sanctum sanctorum. Now they increasingly are seen as a revenue-generating device.

Routinizing Spaceflight, And The Cislunar Void

In case you’ve missed it, there’s been some interesting recent news on the space front, in several different areas. It indicates that real progress has been made in “routinizing” spaceflight–that is, getting to the point where spaceflights have become a normal, expected occurrence, rather than a once-ever-six-months national TV phenomenon–as we get ready to tackle the next step in the development of our extraterrestrial neighborhood.

For now, the routinizing news is all about SpaceX. Today, that company is set to complete its 32nd launch of 2022, which will break the record the company set in 2021, even though the year is barely more than half over. With its fleet of reusable and reliable Falcon 9 rockets and tested launch systems, SpaceX has carried crew members and cargo to the international space station, seeded a bunch of Starlink satellites into Earth orbit, performed missions for the Department of Defense, and made forays into space so commonplace that they don’t get much attention, except from the space nerds (like me) among us.

Here are some interesting statistics: in 2022, SpaceX has launched a vehicle, on average, every 6.4 days and has taken 300,000 kg of material and people into low Earth orbit, which means that SpaceX has done more than all other countries and companies in the world, combined. SpaceX plans to make about 50 launches this year and is basically leading the way to routinized spaceflight, all by itself. That means spaceflight will become even more routine–and, by definition, cheaper–as SpaceX’s competitors ramp up their launches and activities in the coming months, as they plan to do.

This is good news, and an important platform on which to build as space development moves to the logical next step, when we venture beyond low-Earth orbit into cislunar space, which is the area beyond geosynchronous orbit out to the surface of the Moon. The White House Office of Science and Technology Policy recently issued a request for information about developing U.S. strategy for development of cislunar space, and some responses have urged that commercial entities should lead the way. That is, the governmental role shouldn’t be to do everything, as it did in the ’60s space program, but instead should be to clear the way for commercial companies like SpaceX to apply their creativity, engineering prowess, technological savvy, and venture capital to lead the development effort. With many companies focusing on cislunar space, and the government helping to coordinate their efforts, development and further routinizing of spaceflight is much more likely to happen quickly. That will set the stage for an early return to the lunar surface and the Moon bases that were forecast in 2001.

Those of us who are creatures of habit know the value of the routine. That is true for spaceflight as well, and will continue to be true when cislunar space is the focus. What SpaceX has done is impressive, but it also allows us to glimpse the possibilities.

The Cookout Cost Check

We’re in the middle of one of the great cookout weekends of the American summer season. The three-day Fourth of July weekend is traditionally a time for families to gather together, for the kids to frolic in the yard, and for Dad to fire up the charcoal and then produce hot dogs that are so burned they resemble black tubes of carbon and grossly undercooked cheeseburgers for all to enjoy.

That’s why it’s also been traditional for the American Farm Bureau Federation to conduct a market survey of the cost of items that might be part of a traditional Independence Day cookout as an illustration of food prices. The Farm Bureau Federation July Fourth menu includes classic items like cheeseburgers, pork chops, chicken breasts, chips, lemonade, potato salad, and ice cream with strawberries for a group of ten people. And this year, the news on the cost front is not good. After a 16-cent reduction in costs last year, the price of the cookout has shot up 17 percent in 2022, making the hypothetical feast more than $10 more expensive than last year.

The cookout cost check is a good illustration of how inflation is rippling through the economy, and won’t come as a surprise to anyone who has been to a grocery store lately. And of course that test doesn’t tell the entire inflationary story. Because the focus is just on the food, the Farm Bureau Federation doesn’t account, for example, for the cost of gas that would be needed to drive to the cookout.

People on budgets can’t simply accept 17 percent increases in food costs and the spike in gas prices that we’ve experienced this year; they’ve got to make adjustments to deal with the cost increases. One way to do that is to modify the cookout menu. This year, we may be seeing fewer pork chops and chicken breasts on the grill, and more hot dogs instead.