The ridiculous cost of certain sh*t
Even folks with only a rudimentary understanding of economics understand that things cost more over time. It’s called inflation and it’s the reason that a dollar today is worth more than a dollar in the future (and why those folks who revel in receiving a large tax refund each year are confused – failing to appreciate that they just gave the government an interest free loan for a year).
But even considering inflation some things cost a hell of a lot more today than it seems they should. There are many worthy candidates (health care deserves its own topic) but here a few that I find especially perplexing.
Just about everything in the world of pro sports
I love my sports as much as anyone but the whole thing has gotten out of hand. Folks have reportedly paid $130,000 to attend (NOT PLAY IN!) the Master’s Golf tournament; $175,000 to watch Steph’s Warriors beat LeBron’s Cavaliers; $300,000 to get premier seats to various Super Bowls; and a record $1.5 Million to watch the cursed Cubbies win their first World Series in over 100 years (sure nice of Cleveland to play a losing part in two of these).
And then there’s the insane cost today of salaries for guys whose primary contribution to society is that they are really good at throwing, catching, kicking or striking a ball. Sure, guys like Mike Trout (when he’s actually playing) and Trevor Bauer (when he’s not having rough sex) are great athletes and have worked hard at their craft. But putting aside the absurd salary comparisons to nurses, teachers and police, are they better than the greatest hitter and pitcher of my youth, Willie Mays and Sandy Koufax? Mays and Koufax made about $125,000 per year at their apex (roughly $1 Million per year in today’s money at an average annual inflation rate of 4%). Trout and Bauer make nearly 40 times more than that! Is baseball more popular now than it was in 1960’s? I don’t think so – and certainly not 40 times more.
So, what’s the explanation? Sure, ticket prices to games have gone up more than inflation – a seat that cost on average about $2.50 in 1966 (or $21 in today’s dollars) was cheaper than today’s average priced ticket of $30. But that’s minor stuff. Some accouterments of attending a ballgame, like enjoying a beer, have increased to a greater degree as owners realized that they could exploit the absence of competition once fans were stuck in the stadium. A 12-ounce beer that used to cost 50 cents at a game in 1966 (or $4.25 in today’s money) is now $12.50. But most of us can only drink so much beer.
The real driver of team revenues, and thus player salaries, is the exponential increase in the price the Leagues are able to charge for TV rights. No sporting league in the world benefits more from this than the NFL. The NFL has recently cut deals with ALL of the major networks (CBS, NBC, Fox, Disney/ESPN/ABC and even Amazon Prime) to offer their games on a designated day for a combined $111 Billion through 2033. That’s an 82% increase over just the last series of collective contracts. Indeed, each NFL team receives more than $200 Million per year from TV money before a single thirsty fan enters the stadium – and that figure will reach nearly $400 million by the end of the contract term. TV revenues are the primary reason why the average NFL team is worth nearly $3.5 Billion and why pro athletes make what they do.
But do these enormous TV contracts really make economic sense? TV ratings for sports- even the beloved NFL – haven’t increased in any meaningful way over the last 40 years. Indeed, the highest Super Bowl ratings were back in the 1980’s. It’s only because the major networks have no other content that people want to watch live in the post-Netflix world and they’re desperate to find anything that their advertisers can be more confident viewers will actually see. I think this TV-dependent sports model is unsustainable in the long-term and is ultimately doomed to serious correction as the younger population rejects traditional television and a greater number of them also rejects the notion of spending every Sunday (and now Monday, Thursday and Saturday) sitting on a couch for hours watching football over their own physical activity.
In the short term, however, the sports leagues have been saved not only by the networks but also, ironically, by sports gambling. Every U.S. pro league fought tooth and nail to prevent its legalization – arguing in court that it would destroy the integrity of their sport. Yet when the Supreme Court decided that states not named Nevada could also legally offer it, and the majority of states jumped at this revenue opportunity- much like they did with legalized pot – the Leagues benefitted massively. Sports gambling is up more than 50% this year, and it unquestionably greatly increases interest, viewership and attendance. It turns out that the Leagues were not really opposed to gambling on their games after all; they just wanted to get a piece of the pie. Indeed, they and their owners have actually invested in companies that run sports gambling operations. I don’t hear Roger Goodell complaining about the serious potential ethical problem of Jerry Jones owning an interest in Draft Kings which provides him with an economic interest in the outcome of each Cowboy game- in many cases for the opposition!
Residential Real Estate
I know that many Americans have been reared on the dream of owning their own home with a yard for the kids and the dog to roam. It makes logical sense, therefore, that market forces of supply and demand would cause residential property to appreciate over time, beyond that of inflation. Yet between 1953 and 1978 the average home price on an inflation adjusted basis did not change. At about $18,000 in 1953 and $43,000 in 1978 both represent an adjusted inflation price of $183,000 today. In the twenty- five years that followed, the average price of a home as of 2003 increased to an adjusted inflation price in today’s dollars of $250,000 (an increase of about $2,500 per year). In the next 16 years (before COVID reared its head in early 2020) the average home price (inflation adjusted) went up another $30,000 to $280,000 (an increase of about $1,875 per year).
Today, less than two years later, the average home price is nearly $330,000 – an increase of more than $25,000 per year! In some areas of the country like the Bay Area, the average home price now exceeds $1 Million. In short, there has been an addictive run on home buying. Some of this is undoubtedly due to COVID and the increased importance that some have placed on the value of having a private home residence. Another significant factor is that investors (including large hedge funds) have been gobbling up large quantities of residential homes in popular cities for a while now and have inflated the prices beyond the ability of many to afford them.
But even that doesn’t fully explain the current home-buying hysteria – an apparent fear by many that there will be no more homes available, at least “good ones” in the “desired” area, unless you buy now. It’s getting so bad in some places that even a small structure on a nice piece of land in the right location might yield seven figures. Indeed, I wonder what the 44 X 48-inch “home” (pictured above), with not much beyond indoor plumbing, would yield on the coast of California?
People are now routinely bidding on homes not just above what sellers are asking but in some cases hundreds of thousands of dollars more. Can you imagine going into a car dealership and instead of haggling to reduce the sticker price, you had to offer 20% more than they were asking to leave with a car? (It just might ruin the pleasant good cop-bad cop car-buying experience.)
Even more incredible to me are the many people who are willing to buy homes “as is” without having even seen the place or determined whether it happens to be infested with termites, mold or asbestos, or has a crumbling foundation. This real estate bubble can’t continue indefinitely and I suspect it is not going to end well for many.
Gold
And then there’s the price of gold. Gold has been valuable since time immemorial because it is considered beautiful by many and has always been seen as a store of wealth. Among other characteristics, gold also possesses the unusual combination of being both extremely malleable and yet nearly indestructible. But c’mon. In 1932 the price of gold was only about $20 per ounce. By 2006 it had reached $632 per ounce. Today, only 15 years later, it is valued at about than three times that.
I could understand gold’s value more when our money supply was tied to it (back when the Federal Reserve was required by law to have enough gold equal to 40% of the nation’s currency). But that ship sailed a long time ago and there is nothing intrinsically that valuable about this shiny substance that should cause its price to exceed $1700 per ounce. I understand that, economically speaking, something is technically “worth” whatever someone else is willing to pay. But I’m talking logical worth here. At some point folks might actually challenge the absurd notion that if all hell breaks loose and the world is plunged into world war or ravaged by a disease even worse than COVID, that everyone will suddenly shift to gold coins to pay for stuff.
Diamonds
Like gold, I get it that diamonds are really sparkly and nice to look at and that they cost a fair amount of money to mine deep below the surface. And there is that clever marketing jingle that “diamonds are a girls’ best friend.”
But this mineral is priced at a level greatly above its natural supply and demand levels. Diamonds aren’t especially uncommon, there are lots of other prettier and far less expensive stones, and the average Joe can’t really distinguish very well between their quality anyway and are forced to rely on the eye and integrity of a salesperson pedaling concepts of color, cut and clarity. A one-carat diamond ring of “high quality” will typically fetch over $10,000. And yet the minute you cart that baby out the store it has undoubtedly depreciated more than the car you just purchased.
No doubt much of the value of diamonds is due to the fact that they have convinced most of us that you can’t ask someone to marry you without one. It also doesn’t hurt that they have also been commonly used to express gratitude that your spouse was willing to stick around for such a long time and even to try and make-up for screwing up (or someone else) royally.
What’s wrong with a box of chocolates instead? Every woman I’ve ever known (and even Forrest Gump) seems to love the stuff. It doesn’t have to be a Hershey Bar or Milk Duds. To’ak chocolate, which sources its cacao from certified Ecuadorian heirloom cacao pods (verified no less through DNA testing!) is supposed to be the best chocolate in the world. I wouldn’t know because it costs about $225 for a traditional sized candy bar. But I think it would be great if instead of a diamond ring, the groom handed the bride a nice bar of chocolate (provided it wasn’t an outdoor wedding in St.Louis in the summer). With the money they saved they could put a downpayment on that mold-infested home they’ve been craving or perhaps purchase tickets to the next Cubs’ World Series in 2106!
Antimatter
Finally, I will leave you with the most expensive substance on earth. That would be something called “Antimatter” because it requires a mind-boggling amount of energy to generate it. According to the European Council for Nuclear Research, it requires several hundred million pounds just to create one-billionth of a gram of the substance. Thus, it costs something like $62.5 TRILLION per gram. In other words, Bill Gates can’t even afford it. It also happens to be extremely dangerous, as it annihilates any matter that it may come into contact with in a huge explosion. In this case at least, purchasers can expect a real bang for the buck.
