I will admit up front, as I often have in the past, that you could put everything I know about economics into your navel and still have room for a herd of elephants and a brass band. But the more I think about the subject, the more I have come to believe that much of it is a scam based on human behavioral psychology. A good specific example of this is the concept of inflation, which the International Monetary Fund defines this way:
"Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. But it can also be more narrowly calculated—for certain goods, such as food, or for services, such as a haircut, for example. Whatever the context, inflation represents how much more expensive the relevant set of goods and/or services has become over a certain period, most commonly a year."
Economists tell us that inflation is a feature, rather than a bug - a constant force to be managed by professionals who adjust interest rates, tinker with the money supply, apply or adjust tariffs, etc. I, however, expert economist that I am, think that there's a much more simple reason for inflation: greed.
I've thought about this a lot lately, most recently when I saw this amazing article by Irina Ivanova in Fortune magazine: Delta Moves Toward Eliminating Set Prices in Favor of AI That Determines How Much You Personally Will Pay for a Ticket. Yes, Dear Readers, if you fly on a Delta flight, the price you pay will be calculated by an AI algorithm that determines the maximum amount it expects you can afford. Or, to paraphrase an often-attributed quote: plucking the maximum number of feathers from the goose with the smallest amount of hissing. This is not inflation. This is raw, unashamed greed.
Much of what we automatically blame on "inflation" is nothing more than greed, couched in the lofty language of economic laws and forces like "supply and demand" or "charging what the market will bear." It's why you can't afford to buy a house, why your weekly food budget is gone by Wednesday, and why you can pay for decades and your student loan balance is still in five figures. It's greed, and we accept it because it's easy to shrug and blame "inflation" for which there is no justification*.
Greed. It's the only law of economics you need to know.
Have as good a day as those who make the economic law will let you afford. More thoughts coming.
Bilbo
* I can see the price of something going up if there's a rational explanation for it ... for instance, if a particular mineral needed to build a widget is now harder to mine because the easily accessible deposits are exhausted, the cost of extraction may be greater. I can get that. But if the underlying costs don't change, greed is the only rationale for raising prices.
3 comments:
Corporation executives are ruled by the stock market, the stock market insists on profits higher each quarter, not just that you made a profit, but that it was greater than the previous quarter.
I worked at a credit union for 11 years and I could not figure out how it was possible for everyone's loans to be repaid, as there is only so much money. So with X amount of cash on loan, the financial institutes have to keep, say, X/10 on reserve, they can lend 90% of their assets (which are your deposits in a credit union), people's interest payments on their debt pays for the operation and keeps the interest rates down for a credit union. "Where does the money come from to pay the interest?" I would ask, in a macro-econ sense, I never got a satisfactory answer. Our lending system is a well regulated Ponzi scheme that for the most part works (mostly for the investors), until it doesn't and we know how that works out. Inflation is the price we pay to ward off deflation or stagnation cycles.
I agree 100% with your thinking. Anonymous has taken the explanation a step further, and I'd like to make a further point. Corporations insist on profits because their shareholders insist on it. That includes every single person who has any portfolio in any form, such as pension plans that invest and must do their best to make a profit. I'm not faulting all those individuals; I simply disagree with how "the system" works (capitalism). I especially dislike how market prices for things without any intrinsic value (such as cryptocurrency, but not limited to it) can fluctuate wildly and it's all based on . . . thin air . . . as near as I can tell, or something close to it.
An economist is an undergraduate trying to get their gypsy fortune teller degree.
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