"The Dreaded D-Word"
Plus, everyday high and higher prices,
from the Federal Reserve to you...
By Joel Bowman
Buenos Aires, Argentina - "Welcome to another Sunday Session, dear reader, that time of the week when we gather at the virtual saloon to solve the world’s problems, one copa de bonarda at a time...
We jest, of course. It takes a humble public servant to actually believe he/she/they can make the whole world a better place... and to do so at everyone else’s expense. The best we mere citizens can hope for is to put one pant leg on at a time and one foot in front of the other. Small victories. Speaking of which, we hear our American readers are readying for the big game later today, baking quail egg cookies and such, if we understand Dan correctly...
We have no idea who’s in the match, what the pitch conditions are like, or which team is favored to score the most touchdowns, but we wish everyone a fair contest all the same. (Just kidding. Go team!)
Meanwhile, the cost of this year’s Super Bowl party might come as something of a shock. Analysis by the serious-sounding team at GoBankingRates.com warns us to “get ready for the spending equivalent of being sacked for a 15-yard loss.” Umm... what? Oh, here’s the bit we understand..."U.S. consumers are expected to spend a total of $16.5 billion on food, drinks, apparel, decorations and other items this Super Sunday, according to Statista. That’s nearly $2 billion more than in 2022. Food and beverages take up a huge part of this share, with Americans expected to pay around $85 per person. According to Wells Fargo, the cost of a Super Bowl party is up 11.8% from last year; 8.3% higher if you choose to head to a restaurant or bar for the festivities."
We take a look at the central bank’s promise of everyday high and higher prices in today’s column, below...
"Everyday High and Higher Prices"
by Joel Bowman
"Too many factors must be known,
and no one can know them."
~ Henry Hazlitt
"Everyday low and lower prices. That's the free market's promise to you. And if the free market were allowed to operate properly, that is to say, if it were left to function as the name suggests, freely, lower prices are precisely what you would expect to see. Lower prices at the grocery store... at retail outlets... at the gas pump and online...at the game and at the wing bar.
And yet, as inquiring minds fairly recognize, that's simply not the case. Rather than enjoying a cornucopia of hyper-abundance, brought about by the turbo-charged purchasing power of the dollar, the average working stiff has witnessed his greenbacks plummet in value. In real terms - that is, adjusted for inflation - household net income has gone virtually nowhere in the U.S. over the past half a century. This despite the fact that most households now send two warm bodies off to the daily production line...How could this be?
Road to Nowhere: With all that extra input... with a growing population... mechanized machinery... Moore's Law... the ubiquitous wonders of the digital age... cryptos... EVs... NFTs... ChatGPTs... and all the rest... shouldn't we expect the price of production and, therefore, the cost of associated goods and services, to fall... or, dare we utter the dreaded D-word... "deflate"?
Price deflation is progress, after all. Lower prices – ceterus paribus – are a surefire sign we're getting better at "making stuff." It means we're becoming more efficient. This happy outcome is the result of increased competition and scale in the marketplace. It’s the glowing, cherub-cheeked lovechild of Schumpeter's "creative destruction" and the compounding effect of "learned processes." Standing on the shoulders of giants, and all that.
In this way, lower prices ought to serve as a "kind of dividend for the working man,” as Jim Grant, editor of the venerable Grant's Interest Rate Observer, once (ahem) observed.
“Not so fast!” cry the know-it-all federales. After a year of grinding, multi-decade high inflation, consumers are growing weary of watching the price of their favorite goods ticking up every time they visit the store... or disappearing from the shelves altogether. See everything from baby formula to toilet roll... eggs to prescription medicine... cement to champagne.
As we pointed out earlier in the week, the prices of real world goods, paid for by real world people, satisfying real world needs and demands, are through the roof. Flour was 23.4% more expensive in dollar terms in 2022… lettuce was up 24.9%… butter by 31.4%… and margarine by 43.8%. Then there’s airfares, eggs and school lunches, up 28.5%… 59.9%… and 305%, respectively, for the year.
Whatever happened to “price stability”... one half of the Fed’s own so-called “dual mandate.” (The other half being “maximum employment,” a subject for another Sunday Session...)"
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