Blog

Short blog posts, journal entries, and random thoughts. Topics include a mix of personal and the world at large.

The math is not math-ing

The most dangerous time for a car enthusiast, is when they are about to pay off their car. No more car loan debt means that money is freed up for something else: another car, naturally. The mind wanders at the possibilities. Perhaps it’s time to buy a car with a drivetrain layout you’ve never had before. Or perhaps it’s to re-purchase a car you shouldn’t have ever sold (thank goodness I cannot comfortably afford to buy another Porsche 911 GT3).

If there’s money in the bank account, you have to spend it. Isn’t that the American way? This entire economic house of cards is dependent on people’s continuous, often times reckless, spending.

My 2021 BMW M2 Competition will be paid of in a few months. And boy is the itch to buy another car itching intensely as that date draws nearer. I’m not being irresponsible! It will be the same money that would have gone to the M2 each month! It’s very easy to rationalize to yourself any purchase. The only reason I don’t have a mortgage is because the banks wouldn’t lend me the money.

But, as I like to say since last year: “Not in this economy!” Some people think that because they can afford the monthly car payment, they can afford the car. Don’t be like those people. We have to take in account the total operating cost. That means insurance, gas, and maintenance. And unless you’ve been living under a rock, all three of those things have gone up a lot in recent years thanks to inflation.

Never mind the fact that new cars have gotten rightly expensive. (Average transaction price in America is $47,338 as of this January.) High interest rates also means that monthly payment will be up as well. It’s really not a good time to be buying a second car, taking on tens of thousands of debt for another five years. I am going to keep telling myself that this entire 2024.

Just keep buying?

What if we simply stopped spending? Let’s vote with our wallets.

With all the price inflation going on, the one thing consumers have control over on the supply-and-demand seesaw is our spending. Prices too high - I don’t like it - therefore I am not buying (looking at you, McDonald’s). If enough of us do that, then the proprietors will have no choice but to lower prices. At least that’s what I was taught in economics 200.

Of course, people are still happily(?) buying. That’s why we have not seen a reduction in prices. The entrepreneur wouldn’t lower them if current pricing is sustainable in terms of customer count. Any savings in production cost should be pocketed as increased profit margin. It’s not greed, it’s math. People aren’t running charities. When high prices actively hurt the bottom line, only then will they go down.

Nearly half of Americans cannot cover a $1,000 emergency, and consumer credit card debt is at record highs. That tells me that lots of people are recklessly spending money well into the red, seemingly undeterred by inflation. Please don’t give me the bullshit about folks being poor and unable to afford necessities - thereby going into debt: my parents made less than $2,000 a month for a household of four for the longest time, and yet they still managed to save money over the years.

Overspending is the problem. During the pandemic, when supply chains were impacted, new vehicle inventories were low. A classic supply and demand problem: low inventory, high transaction prices. Because the American appetite for cars is insatiable. I never got mad at dealer markups, because they exist precisely because someone out there is willing to pay. If absolutely nobody was willing to pay, then the markups wouldn’t exist.

It only takes one. And it only takes consumers continually spending for the current high prices to remain. That’s not going to be me, though. I am hugely price elastic. Printed books have increased in price, so now I begrudgingly buy the digital Kindle version.

There's no fairness here

I am still slightly peeved that my car insurance has gone up 20% in this recent renewal period. This, for a car I only drive for weekend leisure, and have zero accidents and claims on record. Inflation sure is a bitch, isn’t it?

What is keeping me peeved is responsible drivers like me are practically subsidizing those who are not so responsible. It’s not me that insurance is worry about - it’s the other drivers on the road. California insurance minimums are too low to afford anything. Cars are so laden with technology that a simple bumper repair on a 2021 Toyota Corolla is over $10,000 (personal knowledge). Any basic fender-bender caused by me - god forbid - my insurance is out at least five-figures just to fix the other party’s car!

No wonder my premium has increased. And I thought it was suppose to decrease consistently as I get older! Lies!

The worst of the worst driving out in our roads are those uninsured and unlicensed. If one of those drivers were to hit me - I am absolutely on my own. There’s no opposing insurance to get money from. And because those who are uninsured aren’t likely to have any assets, there’s nothing for me to sue after, either. The proverbial rock cannot be made to bleed.

Again: the responsible drivers with proper insurance are paying for the subset of drivers who are not insured, or under-insured. It’s not fair, but that’s life. We got to protect our assets and cover potential risks.

It’s sad to see on the r/insurance subreddit folks complaining after accidents. It would typically involve an offending driver with no insurance, but the victim also doesn’t have collision coverage on their policy! So they had a perfectly working car, then boom, now they don’t. Their own insurance won’t pay to fix the car, and the other driver doesn’t have anything. Bad luck, absolutely. Bad planning? Heck yeah. The victims should have had collision on their policies.

Got to cover any downside risks that you cannot afford!

Never eat alone

After my Wednesday evening workout session, I typical go to the local Chipotle for sustenance. There’s no better way to get the big three macros (carbs, protein, and fats) covered than a Chipotle burrito bowl. I’m fairly convinced one can properly bulk up feeding on that alone. Best of all, and the whole point of going there in the first place: I don’t have to cook after a strenuous workout.

But that post-exercise meal plan is changing. California’s new minimum wage law for fast food workers - a luxurious (sarcasm) $20 an hour - went into effect on April 1st. In response, franchises with over 60 stores nationwide (that would be most of the fast food chains we know and frequent) have raised menu prices. You didn’t think they were going just absorb the increase in labor cost, did you? Profit margins are too holy for that.

The price for the burrito bowl I usually get at Chipotle went up about $0.75. That may seem trivial, but fast food costs have already ballooned in recent years due to the pandemic supply chain and inflation. The latest increase is the straw that is breaking my camel’s back. After working out this evening, I cooked at home instead. $15 for a burrito bowl is so not Raven.

While I am happy for the fast food workers getting a raise, I just won’t be the one supplying those dollars. In fact, eating out has become so expensive that I am implementing a new personal rule: no more outside food unless I’m with others. The social aspect is definitely worth paying for. Otherwise, like the McDonald’s meme goes: we have food at home.

Not in this economy

I read this article about the owner of a local Mexican restaurant justifying why the price of their burrito has doubled in price (from $13 to $22) in a few years. The reasons for inflation is universal: material cost and labor costs have increased dramatically. I can appreciate this owner isn’t price gouging for the sake of price gouging. This isn’t like McDonalds: record profits after raising menu prices (read: pure greed).

What restaurant owners need to appreciate in return is that higher menu pricing is going to deter some customers from patronage. (Price elasticity: I learned this in business school.) I am amongst that group of eaters. I have great mental difficulty in paying $22 for a burrito, no matter how deliciously crafted it is, and no matter how logically sound the price came to be. (Especially not when Chipotle exists.) I guess my cost anchor for restaurant food is still in the pre-pandemic era.

Some prices just don’t make any sense to me. $9 for a small bag of popcorn chicken at Quickly is simply absurd. Before the pandemic it used to cost $5. I’ve yet to buy an order at the new price. Quickly has lost me as a customer, perhaps forever if its menu prices don’t go back down. Not to say the company should be sad about it. I see plenty of students on campus willing to pay the $9 for popcorn chicken, and $6 for a milk-tea drink.

You know those hot dog carts that pop up on sidewalks near big events? I recently found out a hot dog there is $10! Think it over: a vendor that doesn’t pay for any rent or permit still needs to charge such high prices to make money. That’s a no buy from me. Not when a hot dog and drink is (a heavily subsidized) $1.50 at Costco.

I’m just hugely price-sensitive when it comes to outside food, that’s all. Restauranteurs can only raise prices so much before it deters enough people like me for it to be a negative. Maybe $22 for a burrito is not that juncture - perhaps $30? If I’m paying that much for a burrito, it had better be the best damn burrito on planet earth.

Endless inflation

And the inflation hits keep on coming. Yesterday I was surprised with a double-whammy: renewal notices on this very domain (hosted by GoDaddy), and my auto insurance (underwritten by Progressive). Both are going up, much to my immense chagrin. Honestly, what remains in our daily lives that has not increased in pricing?

I would classify GoDaddy’s price bump as greed. How much work is there to maintain domain registration? My website is not even hosted with GoDaddy! I am failing to understand where the extra money is going towards. Maybe this site has increased in traffic enough to warrant a price increase? (A lot more pings!) That’s just my ego talking, obviously.

What isn’t greed is my auto insurance premiums going up. I have first-hand experience with how expensive it is to fix cars these days. My father’s Toyota Corolla got into a low-speed fender bender, and the whole ordeal was over $10,000. That’s about half the cost of the car new. It’s all the tech stuff in modern cars that’s driving up the costs. The Corolla has a front radar sensor, which in addition to replacing, the body shop had to drive the car to the local Toyota dealership to get it re-calibrated. Money.

So I don’t blame Progressive for raising my rates. The only slight ickiness about it is that it will probably never go back down. Cars certainly are not getting less complicated! Paying $200 a month (almost maximum coverage with high deductibles) for a car I seldom drive is the price to pay for being a car enthusiasts. My brother has a Lotus Evora - a six-figure sports car - on order. He’s going to be absolutely raked over when it comes to insuring that thing properly.

As saying goes: got to pay to play.

Get your hot dogs here

With all this complaining from me about food price inflation, the one constant I forgot about is the price of a hot dog at Costco. It seems come hell or high water, $1.50 will forever still buy you a hot dog and a soda there. A slice of pizza remains $1.99 as well. There is no freaking way McDonald’s and its $12 for a meal can compete with that.

It’s reputed that the Costco food court is a loss-leader. A marketing spend, an enticement for people to join its membership. That’s why the prices there have not kept up with inflation. That being said, Costco must be hemorrhaging cash at that side of operations now more than ever. Corporate greed aside, it’s indeed true that material costs have increase dramatically in recent years. Even Costco and its buying power can’t be immune to that.

The fact that even under these circumstances, the price of a Costco hot dog remaining the same is a testament to its corporate culture. It’s one of the few brands you can be morally satisified to do business with. (Another is Patagonia.)

But even Costco can only take on so much red ink. Word on the street is that soon, Costco will bar non-members from patronizing its food courts. Previously, anybody off the streets was allowed to buy a whole pizza for the low sum of $9.99. Not anymore! Inflation is so bad that Costco is restricting its de-facto food court subsidy to members only. There’s got to be a return on that subsidy.

The legion of blue-collar workers going to Costco for a cheap lunch will be so disappointed.