 |
|
| A Good Five-Cent Cigar and a Better Consumer Price Index: Relief Is on the Way Regarding the Latter! - Jun. 9, 2005 |
|
An Invitation to Visitors to the Gillespie Research Website
If you are new to this site, please look around while you are here. If you like what you see, be sure to sign up for a free trial subscription. You will find more about this at Information about Free Trial Subscriptions.
______
Summary
The days of a good five-cent cigar are gone forever. Or are they? Maybe not, not if you employ some of the "creative" accounting used by the US Labor Department in calculating its Consumer Price Index. Which means that what this country really needs is a good -- or at least a "better" -- CPI. On this front, worry not; relief is on the way!
_____
Coming Soon: A "New" CPI. First,
Though, Cigars Mixed with Inflation
_____
"What this country needs is a
really good five-cent cigar."
_____
Were it not for the above words, how many people would know that their source, Thomas Riley Marshall, was Vice President of the United States between 1913 and 1921. (How many people know this even with the benefit of the quote?)
Well, Thomas Riley Marshall did indeed serve as Vice President, under Woodrow Wilson. In 1917, Marshall was presiding over a raucous session of the US Senate, a session in which some Senators were vociferously expressing personal views about items the country needed. Finally, Marshall leaned over to John Crocket, the Senate's then chief clerk, and uttered what has become his famous cigar quote.
What does this have to do with the Consumer Price Index? If you know anything about cigars, quite a lot. Besides, I want to have a little fun in getting to this missive's primary mission, along with having the exercise provide a modicum of historical value, too.
If you do know something about cigars, you know it is not hard at all to pay several dollars for a good one. Yes, "one," as in several dollars for one cigar! And you can pay even more -- in fact, a lot more -- for what is considered a really, really good one.
From researching what a decent cigar cost in 1917, I present the following excerpt from Cigar Aficionado:
Q: "What did a cigar cost at the time [1917]? Or, what would one have had to pay for a really good cigar? I gather you couldn't get a good one for five cents. ..."
A: "We called up one of the oldest men in the tobacco industry, Stanford Newman, chairman of J.C. Newman Cigar Co., to answer this one.
"Newman said that probably around the time Marshall proclaimed those words, most cigars sold in the United States cost 10 cents and that was pretty much the universal price as prices were more standardized back then.
"...Newman said that cigars actually did retail for around five cents in the 1930s during the Great Depression; they were back up to 10 cents apiece again following the Second World War where we started to see brand names like Philly's, White Owls and Dutch Masters."
(As an aside, one also involving inflation, do I ever remember those Dutch Master cigar boxes from the early 1950s. They housed my Topps baseball card collection, which had cards with a total acquisition price of maybe $50.00? A collection that today would be worth thousands and thousands of dollars -- but, alas, to someone else. Because in the early 1960s, my parents moved while I was away at college. My Willie Mays, Mickey Mantle and Roberto Clemente rookie cards, plus some other great ones, may even have been given away at that damn garage sale!)
The Segue Begins
We now have a fairly accurate taste of inflationary trends, at least in the cigar market, for the period from pre-Roaring 20s through post-World War II. I'll note that in doing this research, it appears the 10-cent cigar of 1917 went to, say, twenty-five cents during the inflation of the 1920s, only to plunge to a nickel during the deflation of the 1930s.
Anyone in today's market smoking an occasional Montecristo or something of its ilk knows you are making a comparison of many, many dollars to the nickel or a dime of yesteryear. But in moving along here, something devious crossed my mind. To wit: Suppose we applied some of the Labor Department's creative accounting conventions used in computing the Consumer Price Index?
A little hedonics, some product substitution and before you know it, you have something looking more like a White Owl than a Montecristo. After all, per Labor Department "substitution"
assumptions, why would people pay for a Montecristo when they can have a much cheaper knock-off from a Chinese gulag?
Or say that with the help of a no-equity, interest-only mortgage, some bugs leave the White Owl they've infested to upgrade to a Montecristo. There must be some way by employing the "Owners' Equivalent Rent of Primary Residence" approach to show that the price of the critters' new home really has not risen nearly as fast as the marketplace says it has.
You now see where I am heading, I think. It is a not so subtle harpooning of the government's current inflation measurement "techniques," especially those used in computing the Consumer Price Index.
A "New," Better CPI Is on the Way!
In moving along towards my big announcement, I will invoke more Americana, in this case, something commonly attributed to Mark Twain.
_____
"Everyone talks about the weather,
but nobody does anything about it."
_____
We do lots of talking about the inadequacies of measures like the CPI. Now, we are going to do something about it.
One of my great business decisions occurred last year, when Gillespie Research Associates entered into a joint venture with John Williams. From this came a free-standing monthly publication entitled, "John Williams' Shadow Government Statistics."
When I originally approached John, I had very high expectations regarding interest in his work. The response has been even greater than I had expected.
The primary reason, I'm sure, is because most people sense that government data are not as "pure" as they once were. John has extensive knowledge of the area, and he is exceptionally articulate in communicating his body of knowledge.
Yesterday was the publication date for the June edition of "Shadow Government Statistics," and it contained the following announcement:
"Due to popular demand, SGS plans to begin publishing an alternate, monthly consumer price index by fourth-quarter 2005. The index numbers will be set -- not subject to revision -- and usable in calculations in the same manner as the official CPI.
"A history going back to 1990 will be reconstructed, with a bridge to pre-1990 CPI reporting. Annual inflation in the new series will tend to run about three-percent higher than the government's 'official' inflation reporting of recent years.
"A full methodology will be published, in advance, and results will be replicable. The SGS index calculations will be fully transparent and based on publicly available data, not on massaged surveying by the Bureau of Labor Statistics, or over-modeled and over-theorized price levels. Further details will follow in upcoming newsletters. Comments and suggestions are welcome."
The early feedback from readers regarding this development is enormously enthusiastic. Again, though, I'm not surprised. If you would like to know more about this, please read on.
Concluding Comments
Sometime over the next few weeks, John Williams and I will be communicating some important developments relating to our existing joint research activities. This will include an update on the new SGS Consumer Price Index.
(Regarding the SGS CPI, please fell free to take us up on the "comments and suggestions are welcome" invitation.)
In addition, John will be publishing a special paper on the federal budget deficit. This work will not be for the faint of heart. However, it is still better to know the truth about this exceptionally disquieting area of the country's financial affairs.
If you would like to be apprised directly of this information when we release it, as well as receive a copy of the budget deficit article, please let us know by using the "Contact Us" link of John's website. Or if you wish, you may e-mail me the information at: drgillespiesr@aol.com.
So we can get back to you, you must provide at least your e-mail address, but if you are also willing to leave your name behind, this would be most helpful.
(NOTE: If you have requested anything at all from us over the last few weeks, you need not do so again. You are already on the distribution list.)
In preparation for the budget deficit paper, as well as for additional developments on the SGS custom CPI, readers might wish to review some primer work John did on these subjects last summer. The following links will take you directly to the articles on John's website:
"Federal Deficit Reality"
"Consumer Price Index"
_____
|
|
|
|
|
|