Sunday, April 26, 1998

Allow me to introduce two concepts: the FUFO economy and Luxury Inflation.

FUFO is short for "Full Up and Flat Out." Well get to Luxury Inflation in a minute.

Unless youve taken up residence in the Unabombers cabin, you probably dont need a lot of hints about what Full Up and Flat Out means— youre living it, along with the rest of us. FUFO means everything is loaded and rolling. No more seats. Long lines. And crowds. Wherever you look, there is activity. When was the last time you were on a plane with empty seats?

Meeting friends for dinner at a Del Frisco steakhouse on a Thursday night in North Dallas, the parking lot is jammed and the cars are stacked up waiting for valet service. Inside, there is a line at the bar and in a small anteroom. When a table appears I ask the proprietor if it is always this busy.

He looks surprised. "This is a slow night", he says.

Wherever you go, there are "help wanted" signs.

Perhaps the oddest effect in the FUFO economy is that we have a strange mixture of deflation and inflation. It isnt supposed to be that way, but it is. Skeptics might consider these observations:

Deflation in Goods.

The March producer price index told us prices were sinking, not rising. Finished goods fell 1.8 percent during the last twelve months, the same as intermediate goods. Crude goods fell 7.8 percent. March was the sixth month in a row with no increase in prices. Economists like to measure these things.

But you can experience this for yourself. And you can do it almost anywhere. Start with the local gas pump. Go to a car dealer. Beneath all the smoke and hype, car prices are flat to lower. Supermarket prices, particularly for highly competitive frozen foods, seem to be dropping monthly. Anything you could call "consumer electronics" is on sale, soon to be remaindered. Personal computers no sooner reach the $1,000 level than some start projecting $700 by summer and $500 by Christmas. Another year and you may be offered a free computer for signing up with America Online. Athletic equipment seems to be coming from a cornucopia on steroids: while you can now pay over $5,000 for a bicycle, you can also buy one for $79 and there is broad competition at all price ranges.

Inflation in Services.

Check your next home insurance bill. Farmers Insurance recently sent me a bill with a 26 percent higher premium than last year. You may have received similar abuse.

Try hotels. In January my wife and I went to celebrate her birthday at our favorite hotel, the Four Seasons in Austin. Always a bargain by Four Seasons standards, weekend rooms at this wonderful place could be had for as little as $100 a night when Austin was down and out. Now, only five years later, Austin is the Silicon Hills and the rate is $225.

More recently, I looked at my 1995 edition of the Zagat guide to book a room for a conference at the Saint Regis in New York. Published Rate: $283.

Wrong. That was 1995. When I called last week the lowest possible room rate was $419, up from the $319 listing in the 1997 Zagat Guide. That computes to an inflation rate of 14 percent a year, compounded.

Booking a plane ticket is now an exercise in uncertainty. Recently, I found I could fly from Dallas to New York for prices that ranged from less than $300 to more than $1,500. Similarly, a Dallas to Phoenix flight could cost from as little as $129 to over $1,100.

What makes the difference? Time flexibility. If you dont have lots of time, flying will cost lots of money. Which brings us to the hottest inflation of them all: Luxury.

Inflation in luxury goods and services has been booming since 1994. The Moet and Chandon Luxury Index, which serves as a somewhat tongue in cheek measure for the cost of living it up, has outpaced inflation-for-the-rest-of-us in each of the last four years.

Some of this is hitting close to home. Although I have tried to freeze my basic wine taste just above the screw cap bottle level, the wine store I frequent, Po-Gos, is doing more and more business in wines at higher and higher price points. Where I once happily sampled my way through their $10 and $15 bottles, I increasingly feel like a poor relative at a fancy wedding. Bottles over $60, rare only five years ago, have been displaced by bottles priced at $90 and $100.

And thats penny ante luxury. Restaurateur Jack Shaab, owner of Jacks in Santa Fe, recently told me that competition among the big spenders in New York has driven up the price of rare wines. He cited a 76 LaTour at $2,400 a bottle. "Thats, probably, a $700 bottle of wine," he said.

Therein lies the problem.

In an economy of great production, too many newly rich people are chasing luxuries that, by definition, must remain scarce. Porsche is back. Champagne is up. Caviar is rising. Fashions in mansions have changed so dramatically that mansions in old neighborhoods are starting to look small and quaint.

Thats what happens when your economy adds trillions in new wealth in less than five years and most of that wealth has accrued to less than one or two percent of the population.