Sunday, June 12, 2011

Incredible shrinking products

Just once, I'd like to see a little truth in advertising when it comes to products that continue to shrink in size while their prices remain the same.

"Now get less for the same low price!"

We've all seen the 1/2 gallon of ice cream that became 48 oz, or the pound of coffee that became 14 ounces or the graham cracker that lost 1/4th it's surface area. However, this was a new one for me....

On the right is the generic brown paper bag that I had purchased last year for school lunches. On the left is the same generic brand brown paper bag purchased last week. On the surface there appears to be a slight difference in size, but when you start doing the math, the numbers are really startling.

The larger bag has dimensions of 6" by 4" by 12.5". Total volume of this bag: 300 cubic inches.

The smaller bas has dimensions of 5" by 3" by 11". Total volume of this bag: 165 cubic inches.

That's a 45% reduction in the size of the lunch bag with no reduction in price!!!

Taken another way, the total surface area of the large bag is 274 inches vs. 191 inches for the New and Improved mini-bag. A 30% reduction in the amount of product.

While this was a fun exercise to work through with my kids there are implications for things like this on US economy. For example, the government considers it deflationary when the new iPad2 is launched with more memory at the same price but they often fail to recognize the subtle inflation caused by product resizing as demonstrated above.


About a week ago I noted that the chart readers were nervous about the S&P 500 breaking down and that there was a fast 5% hole in the chart if we cracked those levels. Who knows what the summer will bring but we're only about 1 bad day (1.5%) from retesting the March lows. A breach of those levels could really get things headed back toward last summer's lows.

I'll note however, that the pace and volume of chants for more easing from the Fed has picked up over the weekend. Any sustained drop in the stock market will force the Fed into a Sophie's Choice moment - More stimulus to pump up the market (and saddle the country with more debt) or let the market walk on it's own run the risk that it tumbles without Fed easing.


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