For the past several years, we have been conducting this event at a lovely resort in the Lithuanian countryside. Itâs a pretty placeâ a nice, comfortable, relaxing environment away from all the noise and distraction of daily life.
Now, I pay for the whole thing myself. I rent out the entire resort and pick up the total cost of food, lodging, entertainment, etc. For this yearâs event, my staff was able to negotiate the same price as last year, and I was happy about this.
But after the first two days, we began to notice something different: the resort was actually skimping out on our food portions!
In other words, they kept the price the same as last yearâ¦ but they were delivering less value than before. In this case, it was in the form of food portions that were at least 10% smaller!
(Needless to say, we rectified this by ordering several dozen pizzasâ¦ followed by a very candid conversation with the resortâs General Manager.)
This is an example of something that I see all over the world. Itâs a shadow form of inflation that I call âvalue deflationâ.
You see, most people think that inflation is really all about price, i.e. paying X% more this year than last year. But this is merely one version of inflation.
At its core, inflation is loss of purchasing power. This can mean an increase in price for the same amount of stuff, or it can mean a decrease in the amount of stuff for the same price.
I see many signs of both all over the world as I travel.
Price inflation is obvious. We all know when weâre paying more because we see the price tag. When the price of food or fuel goes up, in fact, it can even result in sticker shock.
Value deflation, on the other hand, is far more deceptive. Most people arenât that closely attuned to realize that their portions are getting smaller, that their âextrasâ are going away, etc. We didnât notice until our stomachs started growling.
Value deflation is not taught at university economics courses; youâll never hear any of these Nobel economists or central bankers mention it. Stiglitz, Krugman, and Bernanke all happily tow the line that âthere is no inflationâ because the price of iPads keeps going down.
These are the people who have the power to influence policy and conjure trillions of dollars out of thin airâ¦ and itâs amazing how easily they can hide the truth from people through this shadow inflation.