The Rembis Report And Other Fascinating Topics - Volume CXXIII

As we head into the American “Holiday Shopping Season” this newsletter is the fifth of six weekly editions in a series about the cost of everything, overspending, corporate profits, and general wastefulness. I am looking at what we do to save money while companies try to get us to spend more and will examine why cars and houses cost so much. Is the price of food fair? What about everything else? Is there anything we can absolutely do without? Who can afford to buy anything, really? To get caught up, click the links below.

• If It Ain't Broke, Don't Fix It - Part I

• If It Ain't Broke, Don't Fix It - Part II

• If It Ain’t Broke, Don’t Fix It - Part III

• If It Ain’t Broke, Don’t Fix It - Part IV

Everything costs more than it used to.

You hear that a lot, right? In fact, if you have spent any time at all shopping for anything, for any number of years or decades, you know it to be true. Pick just any random thing and you would be hard pressed to find that it has not risen with the tide of inflation and costs more now than it did before.

When US dollars were first minted in 1799 they were equivalent to $25.02 today.

That means a penny was worth four cents. Or, does that means fours cents now is what a penny was 224 years ago? That is confusing.

Try not to think too hard about it, but you are right, a penny is worth 25% of what it was two centuries ago. The buying power of a loaf of bread that cost 9 cents in 1939 is equivalent to $1.99 today. So, the cost of bread has basically doubled in 80 years. At least you can buy half loaves.

Prices were pretty stable for hundreds of years, until the twenty-first century. It is tough to find anything that has not risen significantly except for Coca-Cola, which sold for only 5 cents a bottle for years, and is still relatively cheap when compared to everything else. That same 5 cent bottle in 1886 costs only $1.64 now, certainly not as pricey as bread, and it is still the real thing.

Why was Coca-Cola able to remain so affordable when the price of everything else went up so much? Well, for one thing, they took the cocaine out of the original formula in 1903 and that brought the expense way down.

How much would it be if it still had cocaine in it, Mike?

That is not important. What is important is that Coke, and its many soft drink competitors, were able to maintain an economical price point through the great depression, wars, times of recession, and waves of prosperity. But how?

Advertising? They certainly did a lot of it. That top of mind awareness made Coke an icon of Americana. By selling lots of soda pop to everyone? Not everyone drinks soda pop, but those who do, drink plenty. Raw costs? The syrup is formulated for pennies and water is practically free. Maybe it is just magic. The right combination of all of these circumstances coming together to give Coke fiends what they need for a price they love.

That’s not really not the proper use of “Coke fiend”, Mike.

Whatever. You know what I mean. Somehow, the Coca-Cola Company has been able to prosper all over the world without really raising the price of their product. So, why couldn’t every company do that?

Maybe they could. Maybe price gouging has just gotten out of control and everybody is being ripped off. That would explain huge corporate profits and insane executive bonuses, but Coca-Cola’s top brass does pretty good, too. And their price is steady.

So, is it just greed? Is it that raw materials got more expensive? Are workers being paid too much?

No, it is not all that. Every company is different so you must scrutinize each one individually. Some do great and last for centuries. Some go out of business. But when they do, if they made something we really want, like Twinkies or light bulbs, you can be darn certain that somebody else is going to pick up where they left off and start making them again.

There are overhead costs for everything, no matter what business you point at, there is a cost for them to be there. You might look at rent, at personnel, at the electricity bill to explain rising prices.

You might look at the rising cost of shipping. Whatever it is, it all has to go from the point of origin to wherever somebody needs it. The cost of trucks and trains and ships add up. Mail rates to send a simple envelope are still pretty fair, but if you want to get anything anywhere fast, you pay express rates. And even though you might get same day free delivery with Amazon, you are still paying for shipping whether you realize it or not. It is all tied to the cost of oil. That is no secret. Oil costs what it costs because cartels control the prices and if you want gas or diesel to get anywhere you will pay it.

You can’t just blame oil, or greed, or shipping to explain rising prices and pinching economies. These are spokes on the wheel, sure, but the wheel is humongous. Lots of factors contribute to what you pay for that light bulb, especially if it is one of those new ones that is supposed to last forever. Unless you drop it and break it.

There is no way to point to an individual spoke on the wheel of commerce and say “That’s the one. That’s why prices are so high. Right there.” It’s not the grease in the bearings either. It’s not the material in the tire. It is invisible. It graces every spoke like the wind that rushes past. It is always there and the wheel won’t work without it. The wheel goes round and round and prices get higher because of something everybody buys, even the corporate suits at Coca-Cola.

Insurance.

The only people who like insurance are the ones who sell it, and even they don’t like it all that much because they too, need to buy it. Some people would argue that it is not even real, just words on paper. But that paper is money.

Insurance touches everything you buy. Everything. Whether or not you pay to insure your house, your car, your cat, your computer, your cell phone, somebody else paid for some type of insurance before they sold it to you, and in effect, raised the price to cover that cost. They did not make money on it, they just passed it along to you.

We renewed our automobile policy last week. The renewal would have been a few hundred dollars more for the same insurance we already had.

I called around and got a few quotes and only one insurer was able to offer the same coverage and beat the rate that I already paid, so that is who we went with. My due diligence in then shopping for a lower rate than what I ended up with was rebuffed by other insurers with “That’s a great rate. I can’t beat it.” The company rep for the cancelled policy apologized that their rates had risen, but there was nothing they could do about it, except offer us less insurance for about the same rate we already paid.

Then there is housing insurance. Floridians like me are seeing an increase because some companies are pulling out of the state altogether. If you live near the beach you are going to pay more. Probably because savvy insurers know your house is going to be flooded and destroyed within this century. So, the companies are planning ahead, taking advantage of those homeowners who choose to live anywhere below five feet above sea level.

To add insult to injury, insurers cover the home value as the replacement cost when the actual physical replacement cost is much lower for materials. The median price of a house is around $400,000, and that average house is about 1500 square feet with 3 bedrooms, 1.5 bathrooms, and a garage. If it gets wiped out by a hurricane, it will not cost $400,000 to rebuild. Maybe $150,000. So, they charge way more for insurance than they should, but if you have a mortgage, it is compulsory for you to be insured, or the bank can take your house.

When you think about it, you might just want to blame global warming. The insurance industry is based on planning ahead for the inevitability of death. They pay when people die, when cars die, when houses die, and when businesses file a claim for some aspect of the business that died. The industry knows that everything they insure is going to die. Will a claim always be filed? No. In life insurance alone, up to a billion dollars a year goes unclaimed.

Sometimes policies get dropped. Thousands can be paid into a policy and then, one day, the payments just stop. Somebody might forget they have a policy, so they don’t renew. It doesn’t even matter what the policy is for. When it drops, the insurer doesn’t call to find out if everything is okay. They just look for a new customer because they assume that the policyholder must have moved on to a new insurance company. If they died, they might hear about it from a beneficiary, or they might not. They won’t make any more money on that policy, but they also won’t have to pay if nobody files a claim.

Even filing a claim is no guarantee of payment. Insurance companies are notorious for finding ways not to pay. In fact, most people, and companies, will pay for insurance for their entire existence, and never file a claim.

Like a casino, the insurance house always wins. The wheel keeps spinning. Eventually the marble pops into the slot with your number on it. Whether or not it is while you are alive is another story.

I don’t like paying for insurance, but I do it. I’d bet that you don’t either.

You got that right, Mike!

At least we can have a Coke and a smile while we sit at the table.

Put some rum in mine!

Thanks for reading.

Click here to read: If It Ain’t Broke, Don’t Fix It - Part VI

If you are new to the Rembis Report and would like to read any of the previous issues, PLEASE CLICK HERE to access the archives. To read it from the beginning, PLEASE GET A COPY of The Rembis Report: An Observation.