Milton Berle Explains Inflation  
How You Are Beating the Price Spiral  
Are Your Social Security Gains an Illusion?  
How We Spend Our Money Now  
Why Our Living Costs Have Risen  
Is More Inflation Ahead?  

Milton Berle Explains Inflation

Why hasn't there been a great outcry against rising prices over the years since World War II, swelling public support for meas­ures that really would stop the wage-price spiral? Why don't the many millions of average Americans feel as strongly as, say, former President Herbert Hoover, that inflation is the most monstrous economic evil there is? Why has grumbling about price rises not been translated into a crusade for price stability or at least buyers' resistance? Why is it that most union members are utterly unmoved when the experts try to explain that a ten-dollar pay rise doesn't mean anything if the cost of living goes up ten dollars at the same time?

The answer to the "why" lies behind Milton Berle's wisecrack —and whoever created it ought to be called to Washington to help the President write his next speech about inflation. For listen to what I heard as I checked the response to the remark . . .

From the head of one of Wall Street's giant financial houses— a millionaire, a capitalist in every sense, and a man thoroughly aware of every fluctuation in the dollar's value and of what the fluctuation means: "Oh, that's a beauty, I wish I'd heard him say it. Yes, in the thirties, I could have bought four suits for what one costs today, and I could have had a mansion in the suburbs for the asking. But I didn't buy the four suits and I didn't take over the mansion, because I didn't have the extra money then, and, just as important, I didn't have the courage to splurge. I won't say it in public, but I'll say it to you if you don't identify me. While I think what has been happening to the dollar is terrible, I personally am better off than I ever dreamed I'd be, and so is my family. I wouldn't turn the clock back for anything."

From a middle-aged housewife who lives with her husband, a junior executive in a New York commercial firm, in a small apart­ment near my home: "I've always lived in this neighborhood, and I remember passing by the grocery once—it must have been

From an active member of the newspaper union in my office: "Ha, I heard that show and I laughed too. What does it mean to me? Well, during the depression, I didn't have any money, so it didn't matter to me what things cost because I couldn't buy them. Now my money buys less, but I have the money. Better off? Sure, I am. Did the union help? Of course it did, and I'm all for it."

From a widow, a friend of my mother's, who's living on insur­ance, social security, and income from a small investment port­folio: "That's cute, and I know what he means. When Steve worked it out so I'd get $250.00 a month from insurance, I thought I'd live comfortably forever after. That dream is busted. But you know what's making up for it? My social security. And I've been making money on my stocks. I'm complaining, but I'm not so badly off. Honestly."

Not until the majority of Americans feel they're being more hurt than helped by rising levels of wages and prices will the cry come, "Halt!" Not until millions feel happier about stable prices than about fatter paychecks will there be a great public crusade against inflation. In the few quotes you've just read—and I have dozens more that pound home a similar message—you can tell how people feel.

Consider, for instance, official statistics showing how workers earning typical paychecks and living in various cities across the land have made out during recent years of climbing living costs. . . .

A woman working a 36-hour week as a secretary in a New York City office is averaging $91.50 today (May 1959). A technical stenographer working a 36-hour week in a New York City office is averaging $90.00. A skilled accounting clerk working 36½ hours is averaging $88.00.

In the past twelve months, the average salaries of New York City women officeworkers have climbed 4.2 per cent to the high­est level ever. In the same twelve months, the consumer price index in New York, which measures the cost of living in this city, has risen 2.2 per cent to a new peak too.

Both salaries and living costs are at record highs, but obviously the woman officeworker has beaten the rise in living costs in the past twelve months. Obviously her "real" income—her income after allowing for higher costs—has increased and she is moving up the ladder of living standards. And New York's workers haven't made out nearly as well as employees in other cities. Ponder these comparisons elsewhere.

In San Francisco, prices have risen 27 per cent since 1950. In the same ten years, weekly earnings of factory workers have jumped 56 per cent. In Atlanta, the price rise has been 24 per cent but the upsurge in factory workers' earnings has been 68 per cent. In Philadelphia, the price rise has been 33 per cent, the rise in factory workers' earnings, 55 per cent. In Los Angeles, the increase in prices has been 27 per cent, in earnings, 57 per cent. In Detroit, the price index between 1950 and this year went up 22 per cent, earnings of factory workers, 60 per cent. In Baltimore, the price rise has been 26 per cent, the paycheck rise, 53 per cent.

And in the United States as a whole the comparison has been: cost of living up 23 per cent, factory workers' earnings up 50 per cent.

What's more, even this doesn't indicate the full extent to which the typical worker has climbed up the standard-of-living ladder since 1950. For not included in the dollar wage-and-salary totals are the great gains achieved by employees in these years

Or consider the official statistics showing how retired workers dependent on social security benefits have made out during recent years of climbing living costs. . . .

Are Your Social Security Gains an Illusion?

How much is the retired worker dependent on social security benefits for life-preserving food, shelter, and clothing really suffer­ing from the inflation we've had in our land in the past twenty years?

Responsible sources have stated repeatedly that the millions of our senior citizens now drawing social security benefits are suffering badly. The First National City Bank of New York, for instance, declared flatly that the social security "pensioner's gains, because of inflation, are an illusion . . ." And taking the point one step further, authorities urging strong anti-inflation actions insist that if just those already getting social security benefits— a whopping 14,800,000 at the beginning of 1961—could be stimu­lated to organized protest against swelling government budgets, we'd be well on the way to victory over the spiral.

The question posed at the start of this discussion is fundamen­tal, so let's seek some objective answers. First, here's a comparison of benefits and living costs today with twenty years ago, ten years ago, and last year.

In 1940, the first year of social security benefits, the maximum check a single retired worker could get was $41.60 a month. Today the maximum for that worker is up to $123.00. The increase in such benefits over the years has been 196 per cent. Simultane­ously, though, the cost of living—as measured by the Bureau of Labor Statistics Consumer Price Index—has soared 111 per cent. Clearly a giant part of the social security gains has been dissipated by zooming living costs. But even over this period, which includes the violent inflation right after World War II, the rise in benefits substantially exceeds the rise in prices.

In 1950 the maximum check a single retired worker could get was up to $68.50, and that, in turn, is now up to $123.00. The increase in benefits in this decade has been 80 per cent. Simul­taneously the cost of living has risen 23 per cent. Again much of the gain has been wiped out by climbing prices, but an 80 per cent rise in benefits is still a lot bigger than a 23 per cent rise in living costs.

In 1958 the maximum check was $108.50. The rise to $123.00 is over 13 per cent. Since 1958, living costs have risen a bit more than 2 per cent. Once more, the point can be properly made. The pensioner's gains are not, as the First National City claims, an illusion.

And the straight statistical comparison doesn't tell the full tale. For the man or woman over sixty-five depending on social security benefits does not buy many of the items, such as new cars, that have ballooned most in cost. This individual does not use the same quantity or quality of goods and services as the average city worker's family upon whose spending patterns the official price index is based, such as daily trips on the bus or subway. Finally, a person over sixty-five today vividly recalls the pay levels of the thirties and whether or not a younger person can understand it, $123.00 a month "feels" a lot bigger than $41.60, even though the larger check doesn't buy much more than the small one.

"We used to get a lot of complaints about benefits," said a spokesman for the Social Security Administration when I called to check my figures. "We don't any more. People seem to feel they're getting a fair deal!"

"You don't get lots of mail grumbling about what inflation has done to the benefits and demanding 'you do something about it'?"

"No."

In the chapter on "Bafflegab," you read the beginning of and the background for the tales which follow. The Consumer Price Index, issued monthly by the Department of Labor's Bureau of Labor Statistics in Washington, D. C, is among the most signi­ficant and yet most often misinterpreted economic barometers in our country. But after years of pleading, the BLS at last obtained the funds from Congress to update the index and by so doing, make it less subject to misinterpretation. One reason the overhaul is so imperative is underlined in the reports on how greatly your spending patterns differ from those of your parents and how you yourself have changed your habits in the past ten years.

How We Spend Our Money Now

Tens of millions of us are getting paid vacations this year and millions of us are spending hefty chunks of our annual earnings on holidays away from home. The spectacular rise in income and leisure time, the creation of play-now-pay-later credit plans, the upsurge in budget vacations, the skyrocketing ownership of auto­mobiles, and the spreading network of superhighways have spurred spending on vacations at and away from home to a point beyond what even the most imaginative dreamed in 1950. Yet there is no expense item tagged "vacations" in the government's official Consumer Price Index.

Although the annual vacation is an integral part of the Ameri­can family budget in 1961, no direct consideration is given to it in this index, which is commonly but erroneously called the cost-of-living index. For when this index was last overhauled ten years ago, vacation spending didn't seem important enough to warrant the addition of items which would specifically trace price trends in holiday and leisure-time living.

Yes, there is an important expense item called "food away from home," and the Bureau of Labor Statistics experts figured the average city family spent 4.6 per cent of its dollar on restau­rant meals in 1950. Trends in these food prices hint at the trend in the cost of vacations away from home, but that's all they do.

Weight is given in the index to the cost of sporting goods, motion-picture admissions, buying and maintaining a car—items that would be used by a family on its leisure time. Trends in these prices suggest trends in the cost of vacations and recreation, but, again, that's all they do.

"There is no question in my mind that recreation—including the cost of vacations—should be given much greater weight in the typical city family's market basket,:”Ewan Clague, BLS Commissioner, emphasized to me during an interview. "When the price index is revised, I believe significant consideration will be given to these items."

The overhaul of the Consumer Price Index—called by a Con­gressional subcommittee "the most important single statistic is­sued by the government"—is underway. Congress has voted the budget for the revision, and this February 10,000 families and single consumers scientifically selected to represent a sample of all city families began filling out fat questionnaires designed to show what city families are buying now, what items are most important and representative.

In coming months and through 1962, families in sixty-six cities will be exhaustively surveyed. In 1963 new test indexes will be constructed, in January 1964 the updated index of consumer prices will be ready. Even though it will be so long before the evidence is available, I am convinced that it will show at least three areas of fundamental change in our spending patterns since 1950.

Our total spending on all forms of recreation is, I am sure, now drastically underestimated. Indicative that the BLS also suspects this is that in its questionnaire two pages are devoted just to spending by family members outside the home city, two more pages devoted to spending for recreation, reading, and education in the home city.

Our total spending on medical care—now given a weight of only fifty cents out of every ten dollars spent—is, I also am posi­tive, greatly underestimated. The fact that four pages in the questionnaire are devoted to medical care costs reveals the BLS suspicion that we're spending more than ever on medical care and that medical care costs more than ever.

Our total spending on the purchase and upkeep of a home is a third area which is immensely underestimated.

The Consumer Price Index may still be valid, but it is increas­ingly inadequate. It is less and less a measure of what is happen­ing to the cost of living of real city families whose spending habits in the 1960s bear scant resemblance to their habits in 1950.

Why Our Living Costs Have Risen

It happened at a small, private dinner given in honor of five West European financial experts. They had been brought to our country by the Committee for Economic Development to report how Europe views our inflation, our outflow of gold, our new trade problems. When I was introduced to the professor from West Germany, he made social talk by saying it was his first visit to New York since 1950 and I returned the social talk by asking what differences impressed him most.

"Oh, the cost of your services—how much the cost of service has gone up in your country!" As I started at the utterly un­expected answer, his words tumbled out. "I had my hair cut today, it cost me two dollars! I had to have my suit pressed when I got off the plane, they charged me two dollars! I took a taxi for only a few blocks and the meter said a dollar thirty! I ..." While he paused for breath, a few others joined us and the conversation switched to how much additional price rises might hurt us in competing in the world trade markets. But I kept staring at the professor, for it had taken a stranger to pin­point with a few simple illustrations the most important and yet the most underplayed aspect of our postwar inflation.

At dinner, the conversation revolved around what policies America should adopt to regain a balance in trade with the rest of the world and reassure our friends that we can and will control inflation. Understandably much of the talk was about the prices of goods. But the great force behind the rise in the price level since World War II has not been the rise in the cost of things. It has been the rise in the cost of non-things—services. Consider this:

All items in the consumer price index rose 29.3 per cent be­tween 1947 and 1958. But all services in the index soared 50.7 per cent!

The rise in the prices of durable and nondurable goods we personally consume was around 19 per cent in this period; the rise in the prices of the services we consume was 42 per cent.

As the staff of the Joint Economic Committee puts it, "the impact of services on the movement of the Consumer Price Index and, in view of the importance of the index as a factor affecting wage movements, on the economy as a whole, is striking." And Dr. Otto Eckstein, director of the staff, adds the eye-opening remark: "In fact, the index would have shown no net increase whatever from 1951 to 1956 if the prices of services had remained constant; in other words, the entire rise in consumer prices from 1951 to 1956 was due to the services sector."

And not only do services cost more; we also spend an increas­ing share of our dollars for services. Our total purchases between 1947 and 1958 rose 89 per cent while our purchases of services jumped 120 per cent. We've been buying proportionately less goods, proportionately more services.

Why have the prices of services risen so much? Here, the answer cannot be the usual, superficial one about climbing wages. True, on the prices of such services as home repairs, auto repairs, the wages established by the building trades and the auto unions have had a direct impact. In some instances, the same workers who belong to the building-trade unions may work as home repairmen.

But what is the explanation for the tremendous rise in the cost of medical care? Strictly it is the pressure of a ballooning demand on a relatively slowly rising supply. The solution here must be expansion of the supply of medical facilities and medical personnel.

What is the explanation for the rise in the cost of such un­skilled services as cleaning workers, laundrymen, etc.? Clearly it is the molasses pace of increase in efficiency. The solution here must be to improve the productivity in the services, and it can be done.

We'll not find the right answers to inflation unless we know what inflation we're talking about. Our postwar inflation hasn't all been due to rising factory wages and prices of goods—not by a long shot.

Is More Inflation Ahead?

By doing just about everything wrong, we might be able to set off another inflationary upsurge in our country this year or next, but it would be awfully hard to do. It would take almost suicidal genius on the part of big business and organized labor.

Instead of inflation, the whole economic-financial-world-trade background today points to a cycle of reasonable price stability. This means your cost of living will rise gently during a business expansion due primarily to the relentless uptrend in the cost of most home services, medical care, sales and property taxes, etc. It also means, though, that steady to lower prices in food and many major hard and soft goods will help to offset the increases, and the degree of climb in your cost of living will be kept to a crawl.

Is the prospect for a modest price rise of a per cent or two over acalendar year "inflation"? It is not. If we are going to characterize every selective price rise as "inflation," we had better describe every selective price reduction as "deflation." We've developed a tendency during the postwar period of front-paging every price boost, back-paging every price cut.

Is today's rising price trend comparable to the inflationary spurts that have plagued us from time to time since the end of World War II? It is not. The price upsurges of the first postwar period and the Korean war phase were spurred by shortages of goods, buying sprees, and the catch-up of wages and prices from the vacuum of the World War II years. None of these forces is dominant now.

Is a rising price level unusual in our history? It is not. Authori­tative studies show that over the past 120 years in our land, prices have risen on average at the rate of 1 8 per cent a year. "Creep­ing" price rises are scarcely new.

Considering the built-in factors for price increases, a significant decline in our cost of living seems far too much to expect. And we certainly don't want to achieve this via a depression! But just weigh these forces now working for reasonable stability.

"We are a remarkable people," said McGraw-Hill's chief econo­mist, Dexter M. Keezer, and even in these circumstances, we may be able "to float a lot of inflation. But I doubt it." I doubt it too.