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Inflation as Explained by a 15 Year Old

Written by Michal Park 

Interesting story.  Whilst searching for a topic for this month’s Hudson Report, I asked my daughters what I should write about.  My 15 year old immediately suggested “Income Infiltration”.  When I questioned her about what “Income Infiltration” meant, she said “Oh, I just made it up, but you can write about how everything is getting more expensive and we are living on less and less and future generations are impacted in regards to buying food, buying cars, buying houses and what your generation can do to change it”.  Ahh, Income Infiltration = Inflation.

We then called her boyfriend and I got his take on what inflation means – “the reducing amount which your dollar can purchase”.  These kids are pretty savvy. When I was 15, I was still playing with Barbie Dolls and Lego – and using encyclopedias to research topics. These guys get their information from the internet.  As the boyfriend said “if you want to know something, you search the internet rather than pick up a book”.

For all the criticism surrounding the internet and particularly social media, it is a platform that touches on economic activity and politics that our children actually digest. I imagine it’s because the information is presented in short and sharp bursts that their attention spans can absorb. Even so, they know more about economics at this age than I ever did.

Regarding the topic of inflation, they understand that “things in the past used to be much cheaper” and they “won’t be able to buy a house for a long time”.  My daughter explains to me that it will be difficult for her to meet expenses on a minimum wage. She hears second hand about how expensive things are – both by myself and others.  Now that I think about it, I have been banging on about fuel prices and what I can and can’t afford right now.

Whilst I pity the younger generation when it comes to inflation, Bill Smead, chief investment officer at Smead Capital Management, believes that one of the current causes of inflation is “too many people with too much money chasing too few goods,” also known as “wolverine inflation.”. In other words, an inflation fueled by millennials and the size of their demographic who delayed buying homes and cars but started to purchase such assets all at once.  I can accept that there’s a certain instant gratification desire amongst the younger generation, but isn’t the definition of “Wolverine Inflation: presented here, just economics 101?  The law of supply and demand?

Now, I’m no economist, but I am confident that higher energy prices, supply chain constraints and government stimulus have been the cause of inflation, not millennials.  But I stress again, I am no economist.

Okay. So there you have the 15 year old interpretation of inflation and wages stagnation. If you have children, I encourage you to ask them about what they know and hear regarding the economy. It’s enlightening and a truly engaging experience.

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