"Everyday High and Higher Prices"

"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've pointed out 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.”)"

- bonnerprivateresearch@substack.com