The most pleasant surprise in my first year teaching economics and government full-time was being asked to take-on a financial literacy course as well. My friends and family tease me about keeping the thermostat at 78 during Texas summers, but it looks like it paid off.
Current events have helped illuminate the content of that class just as they have for econ and gov.
The Wall Street Journal recently detailed how consumers are making “every penny count” on groceries. Some are diluting household cleaners, while others are merely dabbing their toothbrush with toothpaste.
This is largely due to the higher-price wreckage from the shutdowns of a few years ago. The ascendant protectionism of the last decade has added its own upward pressure to prices.
There is a cruel irony here.
Policymakers and economic experts in the media and academia have made no secret this century of their desire for higher inflation. It stems mainly from a fear of Great Depression-like deflation.
This is yet another example of how far this cohort has migrated from basic economics toward a central planning frame of mind, and lost touch with the average citizen along the way. Do they not have any flat-screen TVs in their homes?
That example always pops up when discussing inflation with students.
When I bought my first one over twenty years ago, it was a 42” plasma that went for around $2,500. Remember Miles Finch bragging about those in 2003’s “Elf”? They weren’t cheap. Their strong sales in spite of that lofty price got other producers’ attention.
Competition rushed in offering the same for less. Or, they offered more features for the same price, like high-definition or app capability (smart TVs), etc. Or both.
Fast-forward to today.
You can get the same size TV for a tenth of that. The other day I watched WalMart employees wheel in a 98” going for 60% of it! This is the organic, virtuous way in which prices drop.
Most consumers would likely welcome such substantial declines in prices of market goods. Not the elite establishment though, and for a couple reasons.
By comparison, in the inverse case, when people expect a rising price level, they tend to buy stuff as soon as they get the money, before their purchasing power drops. See Venezuela or Zimbabwe for extreme examples.
It’s not illogical to assume the opposite in a state of falling prices. If consumers know prices are going to go down, we’ll hold off on purchases. Why buy today if it’ll cost less tomorrow?
But we’re Americans, we like to buy stuff, and the sooner the better. It’s practically scientifically-proven. We like to buy so many gadgets, toys and trinkets that we have to rent storage units for it all.
How many cars have lost their space in the garage for this reason?
And even if we do hold out, and some semblance of price deflatio creeps in, it would necessarily be an effect of rising value in the dollar, which would literally allow more bang for the buck. A stout correction in that direction is overdue.
To make that stick, however, we need leadership that stops toying with Americans and affixes a firm value to our currency. The results when that’s been the case (pre-1971, the 1980s and 1990s) speak for themselves.
But here we are, so hindered by higher prices that even “cheaper generics haven’t seen a corresponding increase” in demand. We’re where experts feared we’d be anyway, but poorer for it.
Though consumer surplus is unlikely to be included in the relatively abbreviated econ lesson in financial literacy, I might mention it nevertheless. It would be relevant to discuss what they might do with the savings such as we’ve seen with flat screens.
If they arrive at a point in life however, where they’re squeezing out savings by “using half the recommended amount” of “laundry powder,” they’ll already know more TVs aren’t in the calculus.
