There tends to be a lot of confusion regarding the discussion of inflation. Part of the problem is many are zealots regarding a particular viewpoint. They want some YouTube videos, read some articles, and espoused whatever point of view they are conditioned into. Rarely do they read source materials where a lot of the stuff emerges from. The situation really gets compounded due to the fact we are in a technologically advancing world.

For this reason, I decided to put together an article highlighting a simple premise regarding this discussion. Unfortunately, many are too young to remember how things were, hence overlook a great deal of change.

At the core of this discussion is simple math. When it comes to CPI, prices, or other metrics, free is not factored in. Here is where things completely go awry.

What Gets Overlooked In The Inflation Discussion

I am sure you heard how the US dollar lost 99% of its purchasing power since 1915. This is something that is backed up by pretty memes and charts online. Like most things posted in this area, it is a bit nonsensical.

We will use this one situation to emphasize how distorted the argument is.

Let us focus upon long distance phone service. There was a time, in the United States, where any calls outside the local area carried a per minute rate. Here are a couple of advertisements going back to that time period.

If we focus upon the first advert, we can see a significant price drop. When calling other networks, it was 25 cents per mintute. The phone company then decided to get competitive and offer a 10 cent/min rate. This is the same in the second image.

When determing pricing changes, we can mathematically work out what the frop was. That is a 60% decrease. This is something that could be tallied into the pricing numbers.

Many will find the concept of paying per minute for a phone to be completely absurd. Keep in mind, this was just the long distance. There was also a charge from the phone company for the line.

Billions of Minutes For Free

How much do you get billed each month for long distance service? The answer is zero within the United States. Even when people have home phones, there is no long distance chanrge. This also applies to mobile.

Some carriers will charge for international calls. However, with the Internet, people can use a variety of messenger applications that allow for international communications.

There are billions of minutes spend each month communicating with people throughout the world at no variable cost. On top of this, we are not only talking about voice. People can utilize text, voice, image or even video.

All of this for free.

No longer are we referring to phone calls. Instead, this is communications. The past 40 years saw massive built out in our communication systems with the cost disappearing. We can internact with people all over the world for basically nothing.

So what is the purchasing power of the US dollar when pricing it in long distance communications? At 10 cents a minute, back in the mid 1980s, it was 10 minutes. Today, it is a number we cannot calculate because there is zero cost.

Even if we factor in the base charges, 10 center per minute, on a $35 monthly bill amoounts to 350 minutes, or roughly 6 hours. For many, that is used up in one day on their smartphone. Of course, the majority of that is on the Internet.

This is a major component that gets overlooked. When there are things that people use to pay for yet now get for free, that is deflationary. Yet it is not factored into the numbers since zero is really just a palceholder.

Posted Using INLEO