Sometimes the best economic analysis comes anecdotally. Why not explain the most important economic issue of our day with America’s favorite food: PIZZA. As we explain in our book Splitting Pennies – Understanding Forex, the real reason of inflation is because of monetary policy, not supply and demand. For a basic primer on Inflation, you can checkout this book “What you should know about Inflation.”
In case you didn’t know, facts about Pizza
Pizza is actually America’s favorite food. The Atlantic covered a DOA report that showed the cheesy stats:
Like football, pop music, and democracy itself, pizza follows in the long American tradition of things that began overseas before the United States imported, violently altered, and eventually defined the institution. Although the first pizza shops didn’t open in the U.S. until the early 20th century, hundreds of years after the original Neapolitan pies, we now spend $37 billion a year on pizza, accounting for a third of the global market. The obsession deepens. On any given day, about 13 percent of Americans eat pizza, according to a new report from the Department of Agriculture. One in six guys between the ages of two and 39 ate it for breakfast, lunch, or dinner today. In part due to this obsession, per capita consumption of cheese is up 41 percent since 1995. Drawn from the report, here are seven facts about Americans and pizza, presented free of moralizing comments about whether or not it is healthy or sensible for the American diet to consist so overwhelming of bread adorned with tomato-cheesey gloop.
Pizza, is actually an AMERICAN food, brought to America by the Italians. Pizza was invented in Italy, but in Italy, Pizza is completely different, and not very popular. In fact, Pizza is most popular in America. It’s more American than Apple Pie. Check it out:
In 1905, a slice of pizza cost five cents. During the Depression, when families did not have much money, pizza became popular with everyone in the United States. Families were eating different types of pizza on the east and west coasts. A thick-crust pizza was called double-crust pizza or west coast pizza. When they had a large exhibit about pizza at the Texas State Fair, more people inquired about this food than any other.The first recipe for pizza appeared in a fundraising cookbook published in Boston in 1936. The recipe, for Neapolitan pizza, was made by hand. Dough had to be hand-stretched by pizzaiolos and housewives until it was half an inch thick. The pizza had cheese, tomatoes, grated parmesan cheese, and olive oil. Surprisingly, the dough was not made by hand, but cooks were told to buy it at a good Italian bake shop.However, pizza was mostly limited to Italian immigrant communities until after World War II, when American soldiers returning from Italy still wanted their pies. Popularity spread, and various American styles developed. Pizzeria Uno is credited with the invention of the Chicago deep dish pizza in 1943. This is known as tomato pie and was baked in rectangular pans in bakeries. Its crust was extra thick and it had seasoned tomato puree and was dusted with Romano cheese before it went into the oven. Some eventually had meat and thick cheese, and it was so thick, it often had to be eaten with a knife and fork.
The American Dollar is collapsing
From five cents a slice to $20 a Pizza. What happened? During this time, the US Dollar went down by more than 95%. Let’s take a look at one of America’s favorite Pizzas, Numero Uno Pizza. For those of you who have not had the pleasure to live in the greater Los Angeles area, where Numero Uno has had 95% name recognition, Numero Uno Pizza is a household name. Interestingly, Numero Uno was founded in Los Angeles right around the time Nixon created Forex; 1970. We’ve obtained an old Numero Uno menu (we think though, it’s from the 80s) that shows prices from that time:
Wow! .85 House Wine, less than $5 for a Carafe!
Now take a look at prices we’ve lifted from current NU store sites, such as Numero Uno Palmdale:
The most popular NU pizza is the S5 “Slaughterhouse 5” which currently stands at $16.95. We confirmed with the manager of Palmdale location that indeed; prices are due for a rate hike in January.
From $10.85 to $16.95 isn’t too bad, Pizzaflation is not nearly as bad as inflation in other markets, most notably, real estate, groceries, coffee, and other items. Using an inflation calculator, $1 in 1970 is about $6.21 today. If the menu is from 1985, the S5 should be $24.29. Other NU stores have it priced at $19.99. In any case, for older folk, $20 is a lot to pay for a Pizza, in their mind. But that’s only because of memory, of times past. Inflation is a slow subtle tax. From a ‘real dollar’ perspective, Numero Uno Pizza is cheap.
Let’s understand the second component of inflation that’s less obvious – the deterioration of QUALITY. You can get a Pizza today for $5 – but it’s a bunch of crap. Like any product, you get what you pay for. This part of inflation, the decline in quality, is less obvious but more damaging. Every year, products get a little worse and worse.
The real cause of Pizzaflation
Real analysts must always seek the CAUSALITY
Inflation happens only for one reason: Central Bank prints more currency. More currency, chasing the same or fewer goods and assets, makes the price go up. It’s really simple! QE (Quantitative Easing) has been rampant in recent years. Fortunately for consumers, most inflation has happened in financial markets, real estate, and other markets.
In our household, we measure inflation with the “Burrito Index”: How much has the cost of a regular burrito at our favorite taco truck gone up?Since we keep detailed records of expenses (a necessity if you’re a self-employed free-lance writer), I can track the real-world inflation of the Burrito Index with great accuracy: the cost of a regular burrito from our local taco truck has gone up from $2.50 in 2001 to $5 in 2010 to $6.50 in 2016.That’s a $160% increase since 2001; 15 years in which the official inflation rate reports that what $1 bought in 2001 can supposedly be bought with $1.35 today.If the Burrito Index had tracked official inflation, the burrito at our truck should cost $3.38—up only 35% from 2001. Compare that to today’s actual cost of $6.50—almost double what it “should cost” according to official inflation calculations.Since 2001, the real-world burrito index is 4.5 times greater than the official rate of inflation—not a trivial difference.Between 2010 and now, the Burrito Index has logged a 30% increase, more than triple the officially registered 10% drop in purchasing power over the same time.Those interested can check the official inflation rate (going back to 1913) with the BLS Inflation calculator by clicking here.My Burrito Index is a rough-and-ready index of real-world inflation. To insure its measure isn’t an outlying aberration, we also need to track the real-world costs of big-ticket items such as college tuition and healthcare insurance, as well as local government-provided services. When we do, we observe results of similar magnitude.The takeaway? Our money is losing its purchasing power much faster than the government would like us to believe.
It’s important for consumers to understand, Pizzaflation is not caused by Pizza makers. Numero Uno actually is doing a great job keeping prices low, because their food cost, rent, and other costs, are all exploding parabolic.
Los Angeles has the highest rent burden in America:
Overall, rents in Los Angeles have doubled since the 1970s:
But of course, that’s not counting other various fees, taxes, increased regulatory costs, increased insurances due to higher crime rates, and other factors. Pizzaflation has hit Los Angeles hard, creating a ‘double whammy’ for businesses like Numero Uno. And with LA’s median income flat since 1970, it makes one wonder who can afford a $20 Pizza. But the remaining Numero Uno stores are mostly packed and have great reviews, so it seems that it takes something really Magic to survive the pressure of the Fed.
To learn more about how the Fed decreases the value of the US Dollar via Quantitative Easing, checkout Splitting Pennies – Understanding Forex – your pocket guide to make you a Forex genius!
The good news, Forex is artificial so you can learn about it online. It’s all digital. If you want the best Pizza you’ve ever had in your life – you’ll have to drive all the way to Palmdale, California and visit Numero Uno Palmdale.
