Penny-Pinchers Gonna Pinch

Text books say that there are two major problems with the Consumer Price Index (CPI). First, accounting for changes in quality is difficult. Second, the CPI is calculated by assuming a fixed basket of goods is consumed over time. For both of these reasons, the rate of inflation that is implied by CPI is typically considered to be about 1% overestimated.

Imperfectly accounting for quality improvements causes higher measured inflation because the stream of services that a product creates for the consumer has increased – even though the product is nominally the same product. For example, the camera on my smart-phone is now good enough to record a high-quality Youtube video, whereas it was of mediocre quality on my previous phone.  My life is better-off with the better camera. But the increase in my quality of life isn’t measured by the CPI. The CPI does, however, make note that I paid a higher price for a phone.

Further, people don’t consume a fixed basket of goods over time. Even if we stopped the introduction of all new products and maintained the quality of all current products, people would still change the composition of their consumption due to price changes among related goods.

When people get hot and bothered by inflation, they often appeal to people who are of less means and who would find higher prices more burdensome. For that reason, below is a graph of some calorically dense and roughly comparable food staple prices (from the PPI).  You can put a protein on top of any one of these and call it a meal: pasta, flour, potatoes, & rice.

Let’s say that a consumer consumed equal parts of these in January of 2020. The CPI assumes that the consumption basket remains constant and plots a weighted average. In such a case, price rose 2.3% through July 2021. But in real life, penny-pinchers gonna pinch. If our consumer is particularly Spartan, then he will always consume the cheapest option – he treats the different foods as perfect substitutes. The Spartan price of consuming *fell* 22.3%. To be clear, the CPI assumes that the consumption composition remains unchanged, while the consumer’s actual basket is responsive to price changes.  Even if a consumer considers these goods to be imperfect substitutes and is willing to cut any particular type of consumption in half in favor of the cheapest alternative, then the price fell by 10%. In fact, a consumer who is at all responsive to prices will always have a cheaper basket than the headline CPI, all else constant.

In conclusion, be careful with your money. Spend it well and seek out alternatives. Your flexibility determines how much money you’ll have at the end of the month. The headline CPI number impacts only the most passive consumer – and even then, budget constraints gonna constrain.

Air Fryer: Redundant, Self-Indulgent Counter-Space-Waster?

While we were all imprisoned at home in 2020, we turned to eating food, and preparing food to eat in order to occupy and comfort ourselves. People baked bread for the first time in their lives. When yeast in the stores ran out, the internet was alive with tips on how to get sourdough cultures started. And a lot of air fryers were marketed and bought.

The premise of air fryers seems unassailable: quickly circulate very hot air (up to 450 F/230 C) to get that delicious fried crispiness with minimal oil, and get it in minutes with minimal fuss and cleanup. Since we had an offer of getting an air fryer at a discount, I consulted my wise friend, the internet. I wanted to love air fryers, but it seems they don’t cook much differently than a modern countertop convection toaster/oven (“turbo broiler”). There are some space-age-looking air fryers with a more slender, curvaceous profile which has a somewhat smaller footprint than a rectangular turbo broiler, but the capacity is typically only enough for one person or a couple with modest appetites.

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The Pappy Pricing Puzzle

If you drink bourbon whiskey (or even if you don’t) you’ve probably heard of Pappy Van Winkle. Bourbon has experienced something of a revival in the past two decades, after being in decline for much of the 20th century. As part of this revival, some bourbons have become very highly sought after by the nouveau bourbon enthusiasts. And the various offerings of Pappy Van Winkle are arguably the most highly sought after. Finding Pappy is almost impossible these days, though this was also true a decade ago so it’s not really a “new” phenomena.

So here’s the “puzzle” for economists: why aren’t Pappy and other rare whiskies sold at market prices? No one in the “legal” market seems willing to do so. I put “legal” in quotation marks because there is a robust secondary market for these bottles, and the legal status of these sales is entirely unclear to me as an economist (alcohol markets are, to say the least, highly regulated).

In these secondary markets, it is not unusual for a 20-year bottle of Pappy Van Winkle to sell for $2,000. The “manufacturer’s suggested retail price” is $199.99. But you will never find this bottle on the shelf for that price. The bottles are held by retailers, either to sell to friends, auction off for charity, or conduct a lottery for the right to purchase the bottle at well below market prices.

So why doesn’t the distillery raise the MSRP? Clearly, they do this from time to time. Ten years ago, if you were lucky enough to find this bottle it was around $100 (I was lucky enough, on occasion). Clearly, they recognize that prices can increase. And that’s not just “keeping up with inflation”: $100 in 2011 is about $120 in current dollars. By 2016, they had raised the MSRP to $169.99. But why doesn’t the distillery raise the price more, perhaps all the way up to the market clearing price? By doing so, they would, perhaps, be able to ramp up production so that in 2041 there might be a lot more Pappy on the shelf. At the very least, they could dramatically increase their profit.

Receipt for 1 bottle of 20-year Pappy and 2 bottles of 12-year Van Winkle “Special Reserve” from 2011.

Also, why don’t retailers just put bottles on the shelf at $2,000? Stores occasionally do this, but mostly because they are fed up with all of the customers calling about rare bottles. Sometimes they will price it even higher than secondary markets. But usually, they allocate the bottles by something other than the price mechanism. Why? Businesses don’t usually leave dollar bills, especially $1,000 dollar bills, on the table.

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Vegetarians and Profits

Like most people, vegetarians have some weird opinions. Let’s assume that they have the ultimate goal of fewer live-stock deaths and less chattel cattle. Ask a vegetarian what they are achieving by choosing not to eat meat and you’ll hear the explanations let loose. By abstaining from meat they’re “reducing factory farm profits” or “helping to keep the price of beef low and unprofitable”. While being a vegetarian may save more cows from the butcher’s blade, it’s not at all clear that vegetarians have a good understanding of their sometimes perpetual boycotts.

What do vegetarians even do?

The decision to consume meat or not falls nicely into the supply-and-demand framework. Fewer people willing to eat meat means fewer purchases of meat products – no matter the price. A decline in meat demand lowers both the number of cows that ranchers will raise a slaughter and the price that they receive. There you have it. By lowering demand for meat, vegetarians reduce both the quantity and price of meat, reducing profits for those evil, animal-carving businessmen.

Not so fast.

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The Many Faces of Molasses

It started as a simple question: can you substitute blackstrap molasses for regular molasses in a gingerbread recipe?

In order to reduce our potential exposure to Covid, we are ordering groceries online and having them delivered. Whole Foods (owned by Amazon), delivers free to Amazon Prime customers like us. In our order the other day we included molasses. We are almost out, and I wanted to make a gingerbread recipe this holiday week. The bottle that arrived yesterday along with the rest of our order says “Blackstrap Molasses”. Hmm, I wondered, what is different about blackstrap molasses and can you use it in place of the usual Grandma’s molasses that we have always had in our cupboards?

Once I get reading on a topic, it is hard to stop. It turns out there is much to know about molasses (treacle, in the U.K.). We all know it to be a sweet, flavorful ingredient in baked goods, and in savory dishes like pulled pork and baked beans. Diluted molasses is touted as a hair de-frizzer and hair mask, and there are even claims it can help combat gray hair.

However, there is a decidedly unsavory side to its past. It played a key role in fueling the triangular Atlantic slave trade in the 1700’s and early 1800s. Plantations worked by slaves in the Caribbean would ship molasses to the American colonies, where it would be converted into rum. The rum was shipped to West Africa, to pay for more people to be captured and then shipped to the Caribbean plantations to grow more sugar and make more molasses.

Not to mention the deadly “Great Molasses Flood” in Boston. On January 15, 1919, a 50-ft high storage tank of molasses ruptured, and sent a 15-ft high wall of syrup racing through the street at 35 miles an hour. It crushed and drowned anything and anyone in its path. Buildings were collapsed, and 19 people died. It has a place in the history of litigation as the birthing the modern class action lawsuit.

But I digress. Back to the difference since between types of molasses. Sugarcane is squeezed to extract cane juice. Sugar, the main desired product, starts off dissolved in the juice. The cane juice is boiled to remove water, to precipitate the solid sugar crystals. The liquid that remains after the first boiling (and the removal of the sugar from that stage) is called first or light molasses. That is what has usually been sold in U.S. grocery stores.

That first molasses is subjected to a second boiling, to extract even more sugar. The remaining liquid is called second molasses, or dark or robust molasses. From all accounts, this is pretty similar in properties to the initial light molasses, just somewhat less sweet and more flavorful. Folks say that you can substitute dark molasses for light molasses in most recipes without making a big difference.

To extract the last little bit of sugar, the second molasses is boiled even longer and hotter. After the sugar from that stage has been removed, what is left is the so-called blackstrap molasses. Obviously, this product will have less sugar and less liquid, then the light molasses, with a higher concentration of the other flavoring components. The operational question for me is: Can I take some of that blackstrap molasses and simply re-dilute it with some sugar and some water to get the equivalent of light molasses?

Internet opinion on this matter is mixed. On the one hand, there are those who answer this question in the affirmative. They say that a half cup of blackstrap molasses plus half cup of light corn syrup (or half a cup of a water plus sugar mixture) can readily be substituted for a cup of light molasses.

On the other hand I read counsel such as this:

Blackstrap molasses is what results when regular molasses is boiled down and super-concentrated, This results in bitter, salty sludge that only has a 45 percent sugar content, as opposed to the 70 percent sugar level found in both light and dark varieties of baking molasses. Spoon University warns against using blackstrap molasses as substitute for true molasses in any recipe calling for the latter due to the fact that its bitter flavor will overpower the taste of whatever you’re making.

And this :

Do not use blackstrap molasses as a substitute for light or dark molasses. It has a strong, bitter taste and isn’t very sweet. It’s more likely to wreck your recipe than help it.

But still I (being a chemical engineer by trade) wondered if this “strong, bitter” taste is merely the lack of sugar, which could be cured by replacing the missing sugar. After all, unsweetened chocolate is unpalatably bitter, but we fix that by adding sugar.

I don’t claim the final word on this, but it seems that the severe third boiling that yields the blackstrap molasses does some chemical alterations. It is not merely a matter of removing sugar. It is all well when sugar is lightly heated to form light brown caramel, but when it gets pushed too far, some bitter, dark brown compounds can form. It is not clear that merely adding sugar can undo these flavors, considering that blackstrap still contains a lot (45%) of sugar.

Conclusion: Blackstrap molasses may be fine for your BBQ sauce and as a trendy, mineral-packed low-sugar sweetener for your yoghurt and tea. But that bottle of thick black goo on my counter is going back to Whole Foods, not into my gingerbread.

Thanksgiving Thoughts: Should I Be Cooking More Soup?

On Thanksgiving, we cook a bird. We eat meat. Then I make turkey soup by boiling the carcass and such. After making turkey soup, I have nagging thoughts, ‘That seemed quite economical. I have so much food now. I should make soup from scratch again soon.’

In fact, I will not make soup from scratch again until next Thanksgiving.*

Part of the reason for starting this blog is to explore my own cognitive dissonance. Is making soup from scratch economical and should I be doing it more? Right now I’m trying to work full-time and also produce food for a family 2 or 3 times every day. I want to minimize the time I spend cooking.

To start, naturally, I Googled “is soup the most economical food”.

Peasants and poor folk could get nutrients out of bones and root vegetables by making soup. Soup is economical in that sense, but I’m not talking about making broth.**

The Seattle Times has an article about chicken soup from scratch. In their introduction, they gave themselves away:

During America’s inexorable march toward processed food, chicken soup became something to buy, not something to make … and many cooks simply don’t know how satisfying a project it is.

So, they are admitting that it’s a lot of work. I do not want a “satisfying project”. I want food that is healthy and appealing; and I also want to avoid buying food from restaurants constantly.

Another article I arrived at was by Prudent Penny Pincher. The title is “60 CHEAP AND EASY FALL SOUPS”. Never trust all-caps. According to this site:

Name brand soups are about $2 per serving. Many soups can be made at home for under $1 per serving with less 30 minutes of prep/cook time.

The Prudent Penny Pincher page is little more than a list of links to other recipe sites. They wash their hands of the responsibility of telling you how to actually make soup. For research, I clicked their link for chicken soup.

What do you need to have on hand to make chicken soup in a mere 30 minute? Canned broth, for one. Making your own broth is not ‘quick and easy.’ You also need to have cooked chopped chicken and chopped vegetables.

If I have cooked chopped chicken and chopped vegetables, then I could just eat that! That’s a meal nearly finished. My guilt over not making soup from scratch regularly was completely resolved when I read that.

I had a similar revelation after I tried juicing for a week. Not counting the cost of a juicing machine, should you be juicing? If you have never once felt a pang of guilt for not juicing, then maybe you are male.

I borrowed a juicer once and I bought lots of fresh produce. I chopped fruits and veggies into chunks and juiced them. One cup of juice came out, which I drank while spending 20 minutes cleaning the yucky machine covered in pulp.

I realized that I should stop at the step where I have chopped fruits and veggies and just eat them. Fortunately, I hadn’t bought the juicer. Pity the women who juice regularly because of sunk cost bias after they bought the machine. Anyway, I concluded that juicing was expensive in terms of ingredients and time.

Through writing this, I realized that I make soup from scratch at Thanksgiving because it’s a holiday and I’m on vacation. It’s fun when you have free time.

Anyone who disagrees is welcome to comment. Am I discounting the future too much? Should I put work into making soup so that we can eat soup for days?

*There is an exception. I make delicious scallop corn chowder once a year when I am on vacation with extended family in the summer. So, that’s also when I’m not doing my professional work and an extended family member is taking care of my children.

**I do not participate in trendy “bone broth”. Do you think my son would be happy if I put bone broth on the table for dinner?

Happy Thanksgiving 2020

We wish you all a happy Thanksgiving day. I wondered if the academic literature could provide any insights to use on this day. If Google is a good guide, the formal economics literature has ignored the phenomenon of the Thanksgiving tradition.

“We Gather Together” from the Journal of Consumer Research in 1991 does, at the very least, exist. The first line of the abstract made me smile.

Thanksgiving Day is a collective ritual that celebrates material abundance enacted through feasting.

The third line of the abstract made me think.

So certain is material plenty for most U.S. citizens that this annual celebration is taken for granted by participants. 

Here is the official guidance from the CDC about 2020 holiday gatherings. They recommend against large gatherings and also provide tips for visiting people more safely:


Continuing with our gift recommendations, Joy has asked us to recommend another gift besides a book (see my recommendation of The Pox of Liberty last week). I have one clear recommendation: ice. But not just any ice: clear ice.

Some of you might wonder what all the fuss about ice is. But if you have every been to a cocktail bar, you can clearly see the difference: clear ice just looks better. I won’t make any strong claim that clear is has better flavor. This value is primarily aesthetic. It’s a little indulgent. But it’s worth it. Since we’re all drinking more at home, recreating the charms of a good bar is half of the fun.

How do you get clear ice? You might find many suggestions on the internet, such as using distilled water or boiling your water. These don’t work. A few years ago, you only had two good options: buy a Kold-Draft machine for several thousand dollar, or get your ice out of a lake.

Thankfully today, there are many ice cube molds on the market that simulate the way nature makes ice: slow, directional freezing. The best one I know of is called True Ice, but you can find other similar molds. These are all around $40. Perhaps it is a bit much for yourself, but the point of gift giving is to find something the recipient wouldn’t have thought to purchase themselves, and they still enjoy. Otherwise, just give them cash!

And furthermore, while $40 for a mold that produces something your refrigerator already makes might seem silly, keep in mind that ice has a long history of being a luxury product. For fascinating history of the early commercialization of ice, read this article about Frederic “The Ice King” Tudor (for a longer treatment read The Frozen Water Trade).

Here are two cubes I made at home with the molds described in this blog post. Can you tell the difference?

Of course, I am assuming that you already have a basic 2 inch ice cube tray. If you don’t already, start with the Tovolo King Cube Mold before you really get into clear ice. These cubes are great for drinks that don’t need a clear cube since they aren’t clear themselves. They are also the perfect size for shaking cocktails.

And one last thing: fancy ice cubes aren’t just for alcoholic cocktails. Kids love them too. Put some plastic army men or other little toys in the ice cubes as they freeze, and they make great bath toys.

One final tip: if you pull an ice cube directly from the freezer and pour room-temperature liquid over it, the ice will break, ruining your beautiful creation. Set the ice out for about 60 seconds before pouring that delicious drink.

Good Old Lemons

This post doesn’t have a darn thing to do with economics, statistics, or finance. This is a post about citrus storage.

There are problems with buying citrus.

  • If you get a big Sam’s Club size bag of limes, then they start going hard and thin-skinned by the end of a week.
  • A bag of grapefruit? There’s usually one in the bag that’s goes moldy almost immediately and you know what they say about one bad grapefruit spoiling the bunch.
  • Mandarins shrink and get hard to peel.
  • Lemons – even if you refrigerate them – get soft and un-zest-worthy.

There is a solution. Now, our lemons and limes last upwards of 6-8 weeks with hardly a symptom of age. Mandarins don’t shrivel and grapefruits remain edible. No, silly goose, the answer isn’t free markets and the price system.

Maybe it’s all of the additional vitamin C that I’m getting. Maybe it’s the warm and fuzzy feeling of money well spent. But I’m now excited each time that we purchase citrus. And I get a cozy feeling of satisfaction whenever I see a nice lemon that definitely should not still be any good.

The answer is really simple. You too can achieve such amazing results. All you have to do is:

  • Rinse your citrus under water, rubbing gently to remove any invisible bad-guy germs. In reality, you’re probably getting rid of mold spores.
  • Place the wet citrus into a ziploc bag, seal, and refrigerate. The refrigeration further retards the growth of any unwanted spores. The sealed bag prevents too much air flow and drying.( I don’t bother refrigerating grapefruit and oranges because I eat them quickly enough).

That’s it. You too can have 8 week old limes and lemons that you bought on sale or in bulk that are nearly as fresh as the day that you purchased them.


Why Eliminate Water Subsidies when we could Reform Our Entire Society?

I love the Gastropod podcast. The hosts do a great job of trying to explain the historical debates concerning food in a charitable and careful manner. Their guests also tend to be very careful.

But the guest from the September 15th, 2020 episode about beef in the US was not nearly so careful. It’s a curse, really, to listen to a great podcast, only to have a portion of an episode ruined because a guest was allowed to spout on a topic outside of their expertise.

John Specht, a history professor at Notre Dame, committed such an offense that irked the heck out of me:

“Any reform is likely to make beef more expensive. So what that means is, I think, to avoid a charge of elitism, we have to recognize that changing how we produce our food has to happen in concert with building a more just society. We need to think of ways to make people better able to afford better-produced food. And we can’t just focus on one facet of that story. We have to think holistically about that. And what that means is that this is an even bigger challenge of what already was a big challenge. But it’s also perhaps even more powerful and even more important.”

Let me first say that I have no doubts concerning Dr. Specht’s knowledge concerning the history of beef in the US. If it’s like the rest of his Gastropod interview, I look forward to reading his book and I suspect that it is stellar. But the above quote has nothing to do with history and everything to do economics, public choice, and political economy. The above quote is why I can’t take seriously many people’s claims about what the ‘good’ is and how to achieve it.

  1. Any regulation or legislation that introduces additional requirements for beef producers will, almost certainly, increase production costs. I’m not sure what a ‘just society’ means to Dr. Specht, but I’m sure that it’s not an objective thing (knowable or not) that aids in analysis.
  2. We need to think of ways to make people better able to afford better-produced food.” Luckily *we* don’t need to think of that. We don’t have the local knowledge of the beef market, nor the potential markets that beef-processing laborers face as alternatives (it’s different for everyone). The age-old, classical econ answer for improving people’s real incomes is to increase their productivity. Even if the labor supply for beef processing is perfectly elastic, and all increases in productivity accrue to the firm, the result of constant wages is a *partial* equilibrium conclusion. In general equilibrium, beef processing skills are probably partial substitutes for some other labor activity. This means that skilled employees can move to other sectors, employers, and industries. *We* don’t have much say aside from policy that makes productive innovation and skill accumulation easier.

Dr. Specht makes the problem out to be worse than it is and the solution to be more difficult than it is. We don’t need to reform an entire social and economic system. We don’t need a new political system that somehow, against all incentives, reflects compassion for beef processing laborers. That’s more than government can achieve.

Government *can* get out of the way. It can ease pathways to working legally in the US, which would reduce the labor abuses in which beef firms can indulge. Legal employment alternatives increases the opportunity cost of laborers. Government can stop subsidizing cattle hydration through water subsidies to ranchers. Reducing the number of cattle, and demand for meat processing laborers would cause fewer of these workers to be employed in what many consider an unpleasant job. With perfectly elastic labor supply, there is no decrease in wages. In general equilibrium, the decline in wages is small if there are many other firms that would demand the unemployed manual labor.  Further, the decline in the quantity of beef produced would make the marginal carcasses more valuable. Employers will likely desire more skilled and better-compensated labor to carve the more valuable inputs. Importantly, the better compensation comes, not from a re-orientation of societal values, rather, from the higher opportunity cost enjoyed by labor that is more skilled.

But removing subsidies and permitting more foreign-born workers aren’t the reforms that are proposed by the likes of do-gooders. Do-gooders want to feel responsible for their good. It’s not enough for them to get out of the way – no one receives praise for permitting others to engage in hard work. Typically, it’s the hard-workers who get that credit. Do-gooders mistake proactivity with good intentions. The result is a desire to employ government in activities that are doomed to failure due to imperfect design and adverse incentives. The incentives provided by markets are inadequate – not for firms, but for the people who desire a prominent role as caring managers.