Gradeflation or Grade Ratcheting or Both?

I think gradeflation by TPGs over the decades is real in the sense that for many series, the percentage of coins in higher grades has increased. And the grade increase for many individual coins has been documented. However, I think most of this is due to what I call grade ratcheting rather than a loosening of standards by TPGs. Grade ratcheting is a statistical effect due to the inherent subjectivity in grading and the submission policies of the TPGs.

If you graded several hundred coins per day of various series in varying condition and did it again the next day with the same coins, do you think the grades would be identical? If yes, read no further. The variation in grading a particular coin attributable to one grader can be lessened by having 2 or 3 graders and averaging the results or having them reach a consensus. However, variation will still be there, just lower.

OK. Grading has subjective elements and can never be absolutely consistent when done by people. So, how do the submission policies of the TPGs come into it? It's the policies that allow a coin to receive a higher grade with no risk of downgrading. For example, PCGS allows already graded coins to be resubmitted either for reconsideration (coin seen in holder by graders) or regrading (coin seen out of holder by graders) with no risk of downgrading. There is a similar opportunity with crossovers. NGC has similar submission policies.

So, what a coin collector or dealer has to decide for a particular coin is whether the cost of resubmission (or crossing) is worth the chance that it will go up in grade. In many cases, going up in grade can substantially increase the value of the coin. So the owner submits, may hit it lucky on the variation in grading, and one more coin goes into a higher grade and out of a lower grade in the pop report. And this could happen if standards never changed.

A similar effect occurs with crack-outs, it just may take more resubmissions to get to a higher grade because the grade may go down in one or more passes through the graders' hands. And yes, it's possible that coin might never make it back to its original grade. That's always a risk with crack-outs.

So, if a coin has been resubmitted and goes up in grade, can the process be repeated until the coin gets a 70? Not unless it started near there in its first grading. Getting a second upgrade will be more difficult than the first, and third even less likely to occur. If a coin is upgraded progressively, eventually, it will be so far from the standard for the next higher grade that its chance of getting it are effectively zero. Eventually many, maybe most, older coins will be so far off the standard for the next higher grade that "gradeflation" will lessen. It won't go away because new coins will be minted and graded, and older never-graded-before coins will find their way into their first slab. Many of these will be resubmitted, and some will get higher grades.

So have grading standards loosened over the years? One would have to have a large collection of various types in varying conditions and know the grades they received years ago. Then they would have to be cracked-out and submitted today and the results compared. Comparing only a single or a few coins would be meaningless due to grading variation.

So, do I think grading standards have loosened over the years? Well, I have this feeling that maybe they have, but can't prove it. Grade ratcheting insured that many coins would go up in grade (and they have!) even with no change in grading standards.

Cal

 

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This basically mirrors my long standing view on the issue. I feel compelled to warn you that this is a very unpopular opinion, and that pretty much everybody else has resigned themselves to the conclusion that the TPG's change their grading standards on a cyclical basis, both loosening and tightening them, in order to drive resubmissions. They are so convinced that this is the reason for gradeflation that they usually won't consider an alternative theory like you and I hold, despite the fact that if they are correct in their theory, the TPGs are perpetrating a fraud on the general public. You can't offer a grade guaranty and then secretly and routinely change the grading standards without committing fraud.

You mention TPG "reconsideration" and "regrading" as an avenue for gradeflation. I have only every submitted two coins in this fashion and both came back with the same grade. I'm aware that my sample size is insignificant, and my point isn't that upgrades couldn't happen, only that I don't think that enough people are using these services and getting upgrades to move the needle on gradeflation.

Crackouts and crossovers are the more likely source of the resubmissions that account for gradeflation. The real problem is that over time it creates a disproportionate amount of coins that are low end for the assigned grade which then can lead to the market perceiving those coins as "representative" for the assigned grade. But that effect essentially created the opportunity for CAC to enter the marketplace with their business model. They basically separate the wheat from the chaff, and the coins that truly deserve the assigned grade are restored in value (somewhat).

I consistently hear that grading was more strict in the 90's and that coins that reside in older holders will be more conservatively graded than coins graded today. I didn't start submitting coins until 2001, and didn't submit Jefferson Nickels until a decade after that, but to my eye and anecdotal experience, I actually see the opposite. I find that many of the Jefferson Nickels, especially war nickels, that reside in old fatty NGC MS67 holders are of a much lower quality than what I see getting MS67 today.

IMO, the reason for gradeflation is a combination of the inherent subjectivity in grading and greed. We have all graded coins and been on the fence as to the grade. Is it a high end MS64 or a low end MS65? Our determinations vary based on how we rank and prioritize the different elements of grading. But it is entirely possible to find a coin where the initial graders all think the coin is MS64, but upon resubmission, all of the new graders think the coin is MS65. Once we admit that this is possible (or even probable), it only takes a financial incentive to start seeing coins be cracked, resubmitted, and MS64s turning into MS65s. This is especially true of conditional rarities where the jump in price is huge compared to the cost of the grading fee. For example, if the price jump from one grade to the next is $1K, and the grading fee is $50, the crackout artist is basically getting 20 to 1 odds to resubmit the coin. If he knows the market and knows he has only has a 10% chance at an upgrade, he can still submit the coin 10 times and make a tidy profit.

 

I often wonder if people slip their grader a $20 on the side.....

 

Considering how the bids have gone down since then:

I don’t worry about grade inflation or opinions on past standards. Do consider if coin can be upgraded or not. For pricing / markup over bid is it A, B, or C?

 

I've benefited multiple times from regrading and crossing. So ratcheting has worked for me. However, most of my submissions for regrading have come back with the same grade. I've never done a crack-out. I agree that gradeflation and ratcheting helped bring about CAC. Cal

 

This is the first time I've seen the term "grade ratcheting". It's perfect.

 

Ya know, when the words just aren't there, there's always that Like button...

 

Pretty sure it was the screwdrivers, not the ratchets, but OK.

 

If this were true, then I could post a group of ten coins with the same date/mm & grade and you could identify which coins were graded in the 90s and which were graded within the last 15 years.

We can call it the gradeflation challenge. What do you say, wanna participate?

 

For the record @calcol is responsible for this thread. For the record.

 

His use of the term "ratcheting" is simply a substitute of the term "gradeflation". It does not infer that he or I agree with the sentiment that the TPGs have "ratcheted" the grading standards, and he explicitly stated this in the OP.

Furthermore, my position on this subject has been unchanged for years:

You are the one who consistently claims that the TPGs have loosened their standards over the years (with no proof). Additionally, you have made the case that the changes have been egregious and that you could easily identify coins that were graded under the modern standards compared to those graded in the first decade of the TPG grading. All I want to know is will you back up your claim by participating in an simple game where everyone guesses which coins reside in old TPG plastic when presented with photos that don't show the holder?

 

What is to stop you from selecting the most optimistically graded coin from today, and the most conservatively graded coin from yesteryear?

In order for this to work, it would have to be completely random. I have coins that I have bought and sold over the years, some in new holders, others in old holders, with no consideration for quality difference in grading generation. I can choose a date where I have 10 examples, post all ten photos in one thread, and people can pick which coins reside in the older holders. The only problem is that I would have to crop the rims out of all the photos.

 

Good discussion thus far...(recap)
Gradeflation
Market grading
Grade ratcheting
Possible loosened grading standards
Doug challenge ???

Not yet mentioned
Should rainbow (attractive) toning/tarnish be factored in to grading, bumping the grade for eye appeal ???

 

A little clarification (I hope!). I think grading standards have loosened a bit over the decades, but haven't seen definitive proof. So it's just a feeling or intuition. I pointed out in my original post that there is only one way to prove it. Pointing out individual coins or selected coins as a group that have gone up in grade won't do it.

The intention of my original post was to point out that gradeflation, which I consider as established fact, can have two causes: 1. Loosening of grading standards, which is the subject of endless arguments. 2. Grade ratcheting, which definitely exists. As long as previously graded coins can be submitted with no chance of the grade going down, subjectivity in grading insures that some will get a higher grade. And this will happen even with no change in grading standards.

In more statistical terms, for plus/minus variation in grading, the minus option has been taken away by the submission policies for reconsideration or regrading of coins submitted in their existing slab. There's only one way to change if change occurs, and that's to a higher grade.

I chose the term "ratcheting" because the current grade is like the current position of a physical ratchet. And like a physical ratchet, if there is movement, it can only be in one way ... in this case, to a higher grade. Long term effect is to raise the population of graded coins to a higher average grade.

Cal

 

The only professional grader I know on these forums is Insider and he works for ICG which is a second tier TPG that doesn't offer a grade guarantee. Furthermore, if he has evidence and is in a position to prove the claim that the TPGs have committed a fraud, then what is he waiting for?

Nobody is disputing that gradeflation is real, but to blame it on a deliberate loosening of grading standards by the TPGs without proof is reckless and stinks of a conspiracy theory. Other than the admission by the TPGs in the first couple years of existence, there has never been a time when a representative of the TPGs has publicly stated that they have changed their standards. In addition, nobody who has ever worked for the TPGs has ever availed themselves of whistleblower statutes to expose this criminal behavior that you and "everyone else knows with certainty."

But let us start there. Do you agree that if the TPGs are secretly and intentionally changing their grading standards while offering a grade guarantee, they are committing fraud?