It was in 2018 that the business media began seriously picking up on the massive business being created by Kylie Jenner. We should excuse the journalists. Figure that Jenner had created what some estimated to be a billion dollar business with seven full-time employees and five part-time. This doesn’t happen, right?
Except that it does in modern times when the global economy is so impressively interconnected. When we’re more and more capable of working together across countries and time zones, the cost of going from zero to billion shrinks rapidly. Even better, Jenner managed to market her make-up wares to the world at a microscopic fraction of the cost that such notoriety would have formerly set an entrepreneur back.
What was it? Jenner enjoyed massive followings on Instagram, and other social media. Able to showcase her new products to followers who couldn’t get enough of all things Jenner, or Kardashian, Jenner achieved in a short time and at much lower costs what it formerly took the rare successful entrepreneur decades to achieve. Such is the present, and future. Of course, in the future the cost of expanding across the globe will be even cheaper as technology figuratively shrinks that same globe.
It’s worth keeping in mind as economists and the journalists who hang on their every word spill lots of ink about how a “Wary World Watches As Prices Fall in China.” The latter was a front-page headline in a recent Wall Street Journal. What economists believe...!
The simple, happy truth is that in a real world free of charts and equations, and defined by rising global cooperation, falling prices are the norm. It’s a relentlessly good “cheap revolution” as the prices of everything fall thanks to more and more hands and machines democratizing access to everything.
Please keep this in mind with regard to China’s falling prices. They’re not the negative signal they’re imagined to be. To see why, let’s start with the popular view that falling prices are either a consequence of a lack of spending, or that the expectation of falling prices will cause people to spend less in anticipation. Both scenarios worry Keynesian thinkers like economist Larry Summers, who imagines “secular stagnation” born of an “excess of savings leading to slower growth.” Summers gets it backwards.
Consumption is the easy part, while savings are more difficult to encourage. Still, an economy is just individuals, and the individual is obviously improved the more that he or she saves. So is the economy more broadly, obviously. There are no companies and no jobs without abstinence, so when people spend less their savings exist as capital for entrepreneurs and businesses eager to grow. Summers’ vision for growth is the picture definition of stagnation.
On to other causes of falling prices, sometimes they’re indicative of changing consumer preferences. Good. That’s markets at work. Let’s add that a falling price by definition implies rising prices of other goods. Basic stuff. If certain goods cost less, the reduced costs introduce new wants and more money in pursuit of them.
All of which brings us back to easily the biggest driver of falling prices: global cooperation. Once again, the more hands and machines engaged in the production of any one thing, the lower the price for that thing. That is so because the more that workers and machines are specialized in what they do, the more they produce. Applied to China, its producers are increasingly connected with the world’s producers. In a globally interconnected economy, falling prices are the bullish result of this connectivity.
No doubt actual deflation that springs from currency-price instability whereby the value of the currency keeps going up would be a problem much as a falling currency is. But at least right now, China’s yuan is largely pegged to a dollar that is in decline as the price of gold indicates. In other words, China if anything has an inflation problem right now thanks to a feckless U.S. Treasury.
Of course that’s another story, or write-up. For now, readers should rest easy that there’s no “deflation” problem in China, and then there can never be a problem of falling prices. Only an economist could believe otherwise.
