A Terrible Guide for Thriving During Inflation
Today’s letter has been in some stage of draft in my head for the last 11 months. I had a couple people ask me if I was going to pick this up again, but the process of writing can be so daunting at times.
And I do a lot of cringing at what I’ve written… But I do like the idea of capturing some thoughts in my head for myself to cringe at later (waves at future Brandon). So let’s get to it!
The past two (and only) things I’ve really written about here are inflation. I gave what I thought was a pretty simple-minded take: if we create a lot of new money, no matter the methodology, that must lead to an increase the cost of goods.
This isn’t some galaxy brained epiphany. It follows from first-ordered principles. More dollars chasing the same goods makes the price increase. I’m a simple person, I’m not stupid. So here we are:
I’m fairly apolitical. My Hottest Take would be that we can’t figure out how to stop moving our clocks arbitrarily forward and backward one hour each year, so how are we supposed to agree on much else?
But we also live in a world where we politicize the hell out of every issue (this is my least hot take and possibly we can all agree on it?). I remember overhearing a President Obama speech where he took credit for gas prices being low. I was a bit dumbfounded at the time. I was young and naiive, and could only think “wait, the president controls gas prices?!?”.
Fast forward a dozen years, and we still get political leaders pushing propaganda like this:
Coming back to first principles thinking, it begs a few questions:
Did the greedy corporations that sell turkey feel more greedy than previous years?
If they’re this in control, why isn’t Big Turkey charging $5,000 for turkeys in November?
Where are the greedy corporations that sell chicken or rabbits? Is this a market opportunity for them to steal what we eat at Thanksgiving?
But moving away from the political, I do wonder - if the costs of goods and services keeps increasing much more quickly than we’re used to, what should we do?
The country of Argentina has gone through these high inflation - anywhere between 10-20% for the last dozen years. With those escalated numbers, the same dining room table that cost $200 five years ago could cost between $300 and $500 today. For one-time purchases, that may not be an issue, but for every day purchases like food, gas, or books it would be absolutely devastating if wages didn’t follow the same growth trajectory. What would a parent do if they started their child in daycare at $1,000 a month and were paying $3,000 by the time they were transitioning to kindergarten?
I found one article where Argentines shared some of their “tips and tricks” of combatting rapid price increases:
Spend Your Paycheck Right Away
Borrow Lots of Money
Negotiate a Pay Raise -- or Two
Buy Inflation-Linked Bonds
Buy Homes and Cars
On the surface, some of these make sense - high inflation or not. Buying homes and/or land has been a successful strategy for most of the world to preserve and grow wealth. Getting a pay raise makes sense if costs are going up for everyone.
Other tips didn’t make as much sense. Spending your paycheck right away? On the surface that seems ridiculous. If I knew something was going to go up in cost, my instinct would be to save as aggressively as possible.
But thinking through this more, I realized I’ve just never lived in that kind of environment. All the money is becoming worthless (literally worth less) by the day. The costs of everything all going up faster and faster. If you were going to buy a table or a cow or a new house or get your back fixed, better to do so now before it’s 10% more expensive in six months. It’s essentially like a use-it-or-lose-it policy, morphing into spend it or lose it.
Obviously, the sense of urgency to spend quickly is going to increase proportionally to the rate of inflation. So, when I see charts that show that year over year inflation reached as high as 50%, I lose my ability to empathize with the feelings they may have. How high would my anxiety jump if I saw my utility bill, my childcare bill, the new jacket I wanted to get all jump up 50% in price in one year? It would feel like drowing.
Obviously, this whole inflation situation has been on my brain a lot over the last few years. I live in the US, where even if the cost of goods is increasing quickly, I’m not losing sleep. However, I have noticed more headlines in my go-to sites like this one from Lifehacker that make me think this is affecting Americans more than I realized:
I’m always interested to overhear how The Youths talk about what they do with their money. We live in a time where every 20-something with a few hundred extra bucks wants to turn it into some serious money. Some kids are buying lottery tickets, some try to become influencers, some are getting into crypto (more on this in the future) and some are buying stocks.
From a simplified view, there’s not much difference between buying a stock and a magical little machine that prints money. Let’s say you can buy this unholy magical printer and it prints out a $20 bill at the first of every month.
Well, how much would you pay for that? Would you pay $100? Probably - that seems cheap right? Would you pay $500? I guess maybe if your time horizon was long enough, and you were certain it was going to keep working.
Would you pay $1,000? I’m guessing not. It wouldn’t pay for itself for 4+ years, and $1,000 four years from now isn’t as valuable as $1,000 now. And you definitely wouldn’t pay $1,000 if there was a chance this machine could break or start paying a little less.
But people aren’t really doing any kind of basic analysis, they’re doing something like these two:
Do these people sound like fools? Absolutely.
Do they sound like they’re about to lose a shit ton of money? Oh yeah.
Will they post a tiktok about all the ways they screwed up? Definitely not.
Are a *lot* of people doing something similar? Well… probably. And that’s where we may all may be a little f***ed.
Wrapping up these ramblings, a high inflation environment is not good. It’s destabilizing and forces us into difficult decisions. You’ll see people taking YOLO shots of getting rich since their money is becoming worthless anyway.
And high inflation definitely effects lower-income earners more than high-income earners. They don’t have excessive discretionary funds to cover persistently more expensive goods and services. So, when you see people in the media, or even billionaires, start talking about the “benefits” of inflation, it might be wise to wonder what’s in it for them…