Ric Answers Your Questions

Sports gambling ads, inflation calculations and the realities of corporate greed

Ric Edelman: It's Thursday, April 25th. Yesterday, I invited you to send in your questions to me, to Ask Ric at TheTruthAYF.com. And that links in the show notes today, by the way, and a lot of you did that. Here are some of them, and my answers for you.  

Susan from Florida asks, “Ric, your podcast on sports gambling and student loans was fascinating and timely. Have you noticed the consistent advertising of sports gambling ads on TV during sporting events?” Yeah, Susan, I sure have noticed that – it is kind of shocking to me that there's a whole lot of very fancy, exciting, motivating, enticing, advertising, encouraging people to gamble on the sporting event that they're watching. And then there is a one-time obligatory public service disclosure that if you have a gambling problem, call this “800” phone number or what happened. There's also disclaimer text and fine print at the bottom of the screen during those ads.  

We see the same thing with cigarettes and with alcohol and other kinds of advertising where the product itself is fundamentally dangerous. But unfortunately, money wins out, and this is why states have approved gambling. It's a huge tax generating avenue for them. We see the incredible revenue that is generated by the television networks, which is shared with the sporting leagues, which goes to their profits as well as to the teams and the players. And everybody argues, this is something people want. And if we don't make it allowable, if we don't make it legal, then people are just going to do it on an illegal basis. And that can lead to even bigger problems. So yeah, I have noticed it, Susan, it's just a commentary on today's situation. It really means we need to educate ourselves about the risks associated with these practices. We need to make sure we are educating our children and grandchildren about this so that they are protected as well.  

Heather from New York writes, “I finally listened to Susie Orman to see if she's truly as bad as you say. And she's even worse. She's like chat GPT playing at half speed, terrible advice and terrible delivery.” Well, Heather, you don't have to persuade me about this fact. I've been complaining about Susie Orman's advice for decades. As I think it's safe to say pretty much every other financial advisor has as well. I have yet to meet a financial advisor who recommends that their clients pay any attention to Susie Orman. 

Rose in Nebraska says, “Ric, I recently heard that if the inflation formula from 1983 was used to calculate the inflation for 2023, it would have resulted in 18% inflation last year, not 3.4%, like the government says. Is that true? And if so, why was the formula changed?” Well, Rose, there are some folks, first of all, yes, it is true. You're absolutely correct about this. But there are some folks who are arguing that this is a government conspiracy because the government doesn't want to tell us the truth about how bad inflation is. And there are claims that if you had done the calculations the old way rather than the new way, inflation would be 18%, as you pointed out last year, not 3.4%. That's a little bit of an extreme statement. It's not really quite true. But thematically, you're in the right direction.  

Let me explain to you what's going on. The CPI, that's the consumer price index, this is the measure of the average change in prices that are paid by urban consumers for a basket of goods and services. The Bureau of Labor Statistics surveys tens of thousands of US households and asks them what products and services have you actually bought? And they do this of urban folks. That's an important distinction, not folks in rural areas. For example, let's say that their survey finds out that an 8 ounce pack of cheddar cheese makes up 70% of all of the cheese sales, and the same cheese in 6 ounce packages is 10% of cheese sales. And for 20 ounce packages, it's 20% of cheese sales. So based on this, one type, one brand, one size of cheese is selected for the survey. And that price for that product will be looked at every month from the same store. And of course, it's not just one type of cheese that they do this. They do this with every cheese. They do this with every car, they do it with every TV, every soap, and so on. It's all designed to reflect what's happening to 90% of the US population. They exclude people in the military, people living on farms, people in prisons, and people in mental hospitals. They don't count the buying habits of any of those folks. And, during every monthly review, federal data collectors look to see if an item is no longer available. You know, maybe a 64 ounce container has been replaced by a 59 ounce container. You know, shrinkflation. And if you have to pay taxes on an item, the tax is included in the calculation. Because you pay it, so it gets counted. That's because there might be an increase in the tax rate, right? That would be an inflationary indicator, too. Now, of course, your experience with inflation could be different from mine. If you buy lots of cheese, but I don't, but I pay for private college, and you don't, or if you have a lot of medical bills, and I don't, our inflation experience will be very different. From you to me. There are also big differences between people who live in cities versus rural areas. People who are young versus old. People in households with kids versus households with no kids. And the survey always has errors. It's called a sampling error. Meaning they assign too much or too little importance to a given product or a service, or they have errors in collecting the price. But overall, most economists agree the Bureau of Labor Statistics does a pretty good job. 

One big issue that you raised is, why has the calculation changed over time? Well, as prices soar, some critics say that the government isn't calculating it the way that they were, and that's not fair. Well, think about this. Back in the 1980s, the Consumer Price Index used to include changes in home prices. It doesn't do that anymore. Back in 1983, the government switched from using home prices to rental prices. If you redo the calculation, it will be different. That's the claim you heard, that if we use the old formula, we would have a different inflation number than we do under the current formula. That's true, but it wouldn't be 18% for 2023, the difference would be 1% or 2% difference. So instead of a 3.5% inflation last year, it would be 4.5% or 5.5%, not 18%. That's some extremist who's trying to make a score political points somewhere. But yes, it would be different. It just wouldn't be all that hugely different.  

The other major change is that we now include expensive products instead of cheaper products. Because this reflects what people are actually buying. This can get complicated, and the Bureau of Labor Statistics tries to get it right. Say, for example, the price of cupcakes goes up. Instead of paying more for cupcakes, you might switch to cookies. So that your cost stays the same, or you might buy a package that has fewer cupcakes, or you switch to a cheaper brand, or you shop at a discount store instead of your normal store. All of these factors are now included in the survey, and that wasn't done in the past. The result has changed the math on what the reported inflation rate is by about one half of 1% per year. So, you're right, Rosie, there are changes in how we calculate inflation, but it's not some nefarious way that the government's trying to manipulate data. Instead, the government's trying to improve the way it reports the data to more accurately reflect what's really going on. So is it different from 50 years ago? Yeah. Is it a conspiracy? No. 

And here's our last question today, Jack from New York asks, "Ric, you recently said that, quote, people who have been scammed once are likely to be scammed again. Somehow, Ric, the letters TRUMP popped into my head. And isn't shrinkflation caused by corporate greed? Not government policy?” Well, Jack, I'm not going to respond to your TRUMP question. I think people will reach their own conclusions about their viewpoint on that.  

But as for your question about shrinkflation being caused by corporate greed rather than government policy, no, I don't believe that it's corporate greed at all. I think that that is a slander on the way most companies are operating and delivering products and services to their customers. Every business is trying to make a profit for sure. Every business tries to maximize its profits for sure. And we certainly see abuses in the corporate environment for sure. But generally speaking, companies are competing with each other, and if one company tries to carve a huge profit for itself by raising prices radically, well, consumers are just going to go shop with a competitor. If United Airlines makes its tickets too expensive, you're going to go to Delta. If Nabisco makes its cookies too expensive, you're just going to go to General Mills. So, no, I don't think it's corporate greed. In fact, I think it's the opposite. I think that corporations are responding to inflation, which is a result of government policy. When they're dealing with higher costs of raw materials, the higher cost of wages for labor, the higher cost of distribution because fuel prices are higher and it costs more to send the trucks all around the country. I think that corporations are recognizing that they have to charge more for the products they're selling. So if that candy bar, which was six ounces was $1 and they now either and now they're faced with having to make that candy bar a $1.10 - well, they'd rather instead turn the candy bar from six ounces to five ounces, shrinkflation. This way they can continue selling it for $1. So instead of you getting as much, but paying more, you get a little less, but you pay the same. This isn't caused by corporate greed. This is caused by corporations desperately trying to continue to be able to offer products that their customers are willing to continue buying. It's a complicated issue, but I reject the notion of flat-out corporate greed.  

On tomorrow's show, is technology really going to put you out of work? 

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