What the Tooth Fairy Will Pay: A Leading Economic Indicator
66Are we in the United States suffering the effects of a deflationary economy? Are we in the throes of rampant deflation, just like Japan? For that matter, is Japan really suffering from deflation? How do we define deflation? Is the absence of inflation good enough to make it deflation, or does the currency have to actually buy more than it used to? And more of what, exactly? Pork bellies, laptops, coffeemakers? How about eggs? What would constitute irrefutable proof that it's deflation? Is there any one leading economic indicator that would tell us?
Surely, there are experts who will give a definitive answer. I'm just way too preoccupied to look it up. But lots of people seem to be worried about deflation. I know, because occasionally I visit the Hubpages Forums.
I don't have time to think about this. I am very busy revising my play The Debt Collector. I have no time to worry about economic issues. So I let the whole thing slide.
The Process of Revision
So I'm going through the play, and in the play Mrs. Hauser, the landlady, is trying to collect $550.00 of back rent from the Lark family. I wonder about that sum. A rent house for a family like the Larks in my neck of the woods would run between $450.00 to $550.00 per month. Of course, I live in the rural Ozarks, and the Larks, well, the Larks lived in the Dallas-Ft. Worth Metroplex around 1985. So, even though rent here is comparable, maybe over there it's not that way, anymore.
Should I change the amount of back rent they owe? If so, which way? Up or down?
Our Chickens Lay Eggs and Cause Deflation
The Going Rate for Baby Teeth
The Price of Eggs
This revision process is driving me crazy. I like the play the way it is. I don't want to change a single word. But will current day audiences accept that it only costs a quarter to play a Planetbuster video game at the grocery store? Who would believe that?
For that matter, is $20.00 not a little low for a Planetbuster game that you can take home with you? My daughter tells me she needs $40.00 to buy a new game for her DSi. But it's not really comparable, is it? The technology has changed.
Bow sends me off to the refrigerator to prepare lunch. There's no room in there. Everything is full of eggs. Eggs everywhere, but no cartons to put them in. I haven't bought eggs in ages. Not since our hens started laying.
But the price of eggs has gone down recently. It's around a dollar a dozen. Is it because I -- and other people --- started raising chickens that the price of eggs went down?
Are eggs a leading economic indicator? Is this proof that there is deflation?
But why can't I buy more of the things I really want with my money? I don't want to buy eggs. It does me no good that the price of eggs has gone down. Is that what it takes to bring the price of things down? That you don't want them, anymore?
The Tooth Fairy
If we go by any one commodity, then we can't know for sure that when its price goes down, we are in a deflationary phase. It could be just a fluke, this thing with eggs. It could be well-off suburbanites who decided to raise chickens that brought the price of eggs down, rather than the bulk of the poor and unemployed who can no longer afford to buy groceries. It could be a trendy thing, like Marie Antoinette playing at country life.
So I go back to my script, and Sophie wants to raise twenty dollars to buy that Planetbuster game. She starts to list the money raising schemes available. She has a loose tooth, and when it comes out, it'll earn her a quarter from the tooth fairy.
A quarter! Just a quarter? Why, I happen to know for a fact that today's tooth fairy pays a dollar a tooth! I know, because I'm a mother, and it's my business to know these things. If we use the tooth fairy as an economic indicator, then today's dollar is worth a quarter of the dollar in 1985. That is serious inflation.
It means that all the little children who lost teeth in the 1980s and stashed their loot in their mattresses have had seventy-five cents out of every dollar stolen from them! Or if not that, it means that children who were paid for four teeth in 1985, and kept the money, can now only pay their own children for one tooth with that dollar.
I am so overcome by this realization, that I stop dead in my tracks.
The tooth fairy as a leading economic indicator
Do you have the same data as I do? Do your tooth fairy experiences jive with mine? If so, I propose that we stop paying attention to the price of other commodities and focus on the tooth fairy's going rate. Because children are given this money to spend as they will, then it doesn't matter what the price of eggs might be or the price of video games. This covers the entire economy and anything worth buying.
Has the tooth fairy's rate gone down since the recent economic decline? If it hasn't, then it's not deflation.
And with that mystery solved, I'll go back to revising my script. Should I change a quarter to a dollar in the updated version? What do you think?
(c) 2010 Aya Katz
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Nets, thanks. That is helpful. But how do you account for the discrepancy between the Tooth Fairy's price hike and the Consumer Price Index for Urban Consumers? Is it the rural Tooth Fairy that quadrupled the price of baby teeth? Do children in the cities only get fifty cents?
I also noticed this about salaries. People seem to think that forty thousand a year is poverty now. When I was just starting out, forty thousand was a very respectable, upper middle class salary, and twenty thousand was a good starter salary. People are treating forty thousand a year now as if it were ten thousand back then. (When I was practicing law, in a good year I could earn as much as fifteen thousand.)
Interesting article. I didn't know you wrote plays. If it's a period play, keep the numbers what they would have been in '85. People are aware of inflation. We all remember when stamps, sodas, and salaries were lower.
I've noticed deflation in certain commodities & services, seemingly all driven by cheap foreign labor, whether imported (laborers/goods) or outsourced. For example, I remember, sometime in the 90's, when it cost about $40 to get your grass cut by an teenager in a Southern urban community. This was before the great influx of illegal immigrants, which altered the supply and demand for the service to where it now costs about half what it did then. Almost anything you can buy at a dollar store is actually cheaper than it was several years ago. A good leather purse (not designer label inflated) can be purchased for less now than when I was in college in the 70's.
i-Scribble, thanks for your comment. I don't write that many plays -- I prefer novels -- but I now have a musical collaborator on THE DEBT COLLECTOR, fellow hubber Daniel Carter, and I am doing my best to push this project forward.
I kind of want to keep it a period piece, because it mentions AFDC, something that is no longer in effect. But it's hard to market anything that isn't current. People aren't that interested in what happened in 1985.
A good leather purse is still a luxury, and I know that in this economy, the luxury market is suffering. I'm keeping a blog about jet planes that are for sale, and they are doing very badly.
On the other hand, I don't think that fanny packs have gone down in price.
Aya,
I haven't been able to find a good table for the NAWI
(National Average Wage Index) which is used by Social Security to discount earnings when calculating benefits.
But here is a graph:
http://www.ssa.gov/OACT/COLA/AWIgrowth.html
It appears to have approximately tripled since 1985.
Here's a table starting from 1951:
http://www.ssa.gov/OACT/COLA/AWI.html#Series
It hasn't quite tripled since 1985 but has grown somewhat faster than CPI.
Nets, thanks. That's very interesting. Do you think people index the price of baby teeth to their salaries, rather than to commodities they purchase?
What would it mean if salaries went up faster than commodities? Is it just that wage hikes are what's driving inflation? Or is there more to it than that?
I had a few other thoughts to share, but was interrupted by a phone call. I can't remember the going rate for the tooth fairy when my son was little in the mid to late nineties. Some people gave dollars, one or more, but our fairy prefered to give change. I think there were wide discrepancies instead of a standard rate. I think the going rate for a kid's birthday gift of money has changed much more drastically. When I was a kid in the 60's, $1 was the standard for a kid to kid gift. When my son was having birthday parties 8 or 10 years ago, some people gave $20! Now that's inflation.
Of course, there is deflation in the housing market currently. That's a biggie.
Good luck with your play. Sounds like a great project.
i-Scribble, thanks for coming back and sharing that. I know that it just feels better to give a coin, rather than a dollar bill, but some of my daughter's friends got a dollar in the form of a single coin from the tooth fairy. I've been getting feedback on Facebook that supports the idea that it's at least a dollar now, if not more, in this area. And people here are definitely not well off.
It could be that there is also a confounding factor in the children's gift market: people are more child-centered these days, so maybe they just spend more on children, period.
I don't have an answer-but it's certainly a very pertinent question!
I spoke with a woman a few days ago whose young daughter had received an invitation to a birthday party....the sender had suggested (to all) that five euro would be perfectly acceptable as a gift.Two years ago ,the usual gift was 25 euro.
This information ,of course, is not answering your question-but ,it certainly appears that current values of gifts to kids is a pretty good indicator of the state of economy .
Enjoyed your hub enormously.
Itakins, thanks! That is very interesting information, although I'm not sure how to analyze it. Has the Euro gone up in value, or are people just not able to afford a gift of comparable value? Two years is a very short period of time to go from 25 to five. Are the actual gifts that can be gotten for five euro today similar to the ones that cost twenty-five euro two years ago?
Aya Katz
In fact there is nothing technical about what is happening-parents ,and chldren,are having to re-learn the value of money.The economic adjustment in Ireland is currently very brutal-basically the economy has imploded- with high unemployment and increased taxation on earners .Prior to this there was an extended boom-or so it seemed.Many people overstretched themselves anyway during this period -buying up investment properties and ,of course,using credit -much of which they still have to pay for (if the repossession man hasn't already got there).
At the top end of the housing market-a house bought 5/6 years ago for 50M euro cannot get a buyer for 13M-at the average end -a house bought in 2006 for 1.2M euro will be doing well in many cases to get 400K .
Disposable incomes are,quite suddenly, way down and reality has hit home-and so the 'constants',birthday gifts,Santa,and I've no doubt ,the Irish tooth fairy have taken a hammering .
I have to say I really enjoyed this hub-and it has sparked off much discussion this am.Thank you.
Itakins, thanks for coming back and providing more information. One of the great things about Hubpages is that it is an international community, so we get to learn more about what is going on elsewhere on the globe. I had no idea what was happening where you are, and I know a quite a bit more about it now, thanks to you.
The technical part, that I alluded to, is in figuring out not just how much money is allotted for a gift, but also what kind of gift that money can buy. Conceivably, there could have been so much deflation that a doll that cost 25 Euros two years ago would now cost only five Euros. This would mean that the child receiving the gift would be getting essentially the same thing, only it would be measured in fewer Euros. However, from reading between the lines in your response, I take it that the gift one can buy with 5 Euros today is not comparable to the gift 25 Euros could buy two years ago. So even though the currency has gone up in value, the average child does not reap the benefit, and may actually have to do with less material prosperity.
A person who has the same amount of money in Euros today as he did five years ago, according to your account, could now buy almost five times as many houses. He could now hire the work of many more people. But I take it that most people do not have as much money as they used to five years ago.
Are the people with savings suffering, too? Or do they find that their money will buy more groceries and more toys today than it did in the past?
I looked the Euro up, and compared to the dollar, it seems to be doing well. In October of the year 2000, the Euro was worth $0.8252. In June of 2010 it was worth $1.1942
This means we in the US are able to buy less with our money than you can with yours today than we could in 2000. But, the deflation at your end isn't great enough to account for the fall in the price of children's gifts. Which means that overall, the children lose.
It is also conceivable that both currencies are being inflated even as we speak...
Aya Katz
Then the real question is -how do we measure purchasing power, and what causes it to change?. As far as I understand it, purchasing power is what the tooth fairies payment for a tooth will buy for the child. How many cookies or new computer games can she buy with the money?
Some time ago (according to the Financial Times) an economist decided that the currency notes left by the tooth fairy were simply not a very reliable or useful measure. He suggested that instead of asking how much one can buy for a dollar-we should use the Mars bar as a medium of exchange for determining transactions in the economy –how many Mars Bars equivalents will buy a mustang –or pay my babysitter?Isuppose one could also use a McDonalds. The value of the dollar /euro./yen fluctuates so much and for so many reasons that it’s much more sensible to focus on the value of a Mars Bar. In other words...How many Mars Bars can a child get with the money the tooth fairy leaves.
Now ,that’s what I think is common sense and a good indicator of whats happening in the economy (and in the lives of families).It may also be of use in determining how much a tooth fairy would have left to a child years ago.
To come back to the Irish situation, it seems that as unemployment increases, two things are happening-The first is that people are decreasing their level of indebtedness because they have fears about the future. The second –people are increasing their savings. This is because people have learned that lots of credit card fuelled spending and many bank loans ,based on perceptions of wealth i.e. the value of houses/investments/pensions is a pure illusion. Should I say delusion?With the value of houses dramatically down and still falling: investments in bank shares have ‘tanked’ and so have the value of our pension funds.It helps that the banks are not lending now .So,we are less wealthy...we have less money to spend and we spend less of that money,
In a spooky world, maybe we are rediscovering the virtues of saving.
Itakins, I think it would be wonderful if it turns out that this economic climate leads us to rediscover the virtues of savings. A deflationary economy would certainly help to bring that about. It's just that, at least here in the U.S., I don't think that we are experiencing deflation. Overall, prices in the grocery store seem to be going up, with the exception of eggs and a few other items.
The Mars Bar medium of exchange would be wonderful -- if the maker of Mars Bars could be prevented from the changing the ingredients or the size of the bar. But for years now, in the U.S. high fructose corn syrup has been slowly and stealthily substituted for sugar, and the fat content of chocolate and other foods has been reduced. It's called a Mars Bar, and the price may not change that much, but it's not the same value.
Every commodity has its own individual history, so that is another reason not to use just one as an index. Gasoline prices have gone up dramatically. Laptop prices have gone down. Eggs have gone down. Tomatoes have gone up. Which should we go by?
You note that salaries have gone down in Ireland? But do they buy less of what you want overall? Is there anything to prevent you from buying everything you need in a country whose currency is weak compared to the euro? Well, besides tariffs. ;->
Today I looked at Barbie dolls in the store. You can get a very nice one for ten dollars. I remember that in 1967, the price was ten dollars for a basic Barbie. I saved up to get one. So if you went by Barbies alone, there hasn't been any inflation since 1967. But another way to look at is: the price of Barbies (if the medium of exchange is tomatoes) has gone down-- a lot!
Aya Katz-
Interesting points here re Barbie-perhaps due to over- supply? When we got Barbie dolls there certainly wasn't the range there is now ...we got a doll and we were very happy to occasionally get a new item of clothing for it-not so in recent times.
It's not so much that salaries have gone down here..it's actual disposable income.The government have consistently bailed out the banks and are forcing us the taxpayers to pay-they introduced compulsory levies on incomes last years,so with the same salary an average household could be down 1600 euro per month on top of previous taxes!Businesses ,of course ,are closing down at a phenomenally fast rate-there has been no reduction in the minimum wage-so there is little incentive to employ people.
I don't imagine gas/oil would be reliable indicators as prices fluctuate so wildly.
I didn't take into account the corn syrup angle in the US-thankfully it's not an issue here.So really the Mars Bar is now a dumping ground for the left-overs of an over-produced vegetable....unfortunately that blows the economists theory out of the water-!
It's a tough one .
There has been a drop in prices here on many items -but of course there has also been a shift in what is now seen as value for money...many are now growing their own fruit and veg and raising hens .Self sufficiency is the order of the day,and allotments are now back in fashion(a piece of arable land rented out for a nominal sum).
On an island it's not so easy to buy elsewhere..except of course we can go to Northern Ireland (GB),but in the long run our own economy suffers further while another benefits.Anyway most of Europe is in a financial mess currently-so we are not alone in our financial cesspool.
Apologies for hogging your hub-it was good fun though.....and I still haven't come up with an answer...I'll watch this space with keen anticipation.
Mind you ,buying dollars isn't such a bad idea at the moment-for those who can or care to.
I think most people are too busy working .keeping the heads down and just getting on with the business of living-while feeling huge resentment and anger with our government and bankers:)
Itakins, so it's the disposable income that has gone down! That might be the root of the problem. Isn't it just like government -- any government, anywhere -- to think that when the overall take goes down, they should get a bigger slice of the pie?! It's like this here, too. Real estate values have gone down, but ad valorem taxes on real estate have gone up. This, of course, makes buying real estate even less desirable, so it drives the prices even further down. But does the government care? No, they have to have their money now. They can't wait for a recovery, like the rest of us.
Personally, I would not invest in the dollar. There's no way to tell what's going to happen next. But it will be interesting to keep watching, provided we have a degree of detachment and are not too invested in any particular outcome.
Nets, thanks for the link. A Google Price Index -- I guess it's a good idea. I wonder what the GPI says about the price of fresh vegetables...
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nhkatz 19 months ago
The bureau of Labor statistics publishes a monthly price index called the "Consumer Price Index for all urban
consumers" which is the indicator most commonly used to measure inflation. Here you may find historical data going back to 1913.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.t
In 1985, the consumer price index was around 107. Th
most recently reported value was 218.312, just a little more than double. This corresponds to an average annualized inflation rate of about 3% over the 25 year
period since 1985.