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Economist Kevin Cockrane - 'Prices Are Never Going Down'
[American Thinker] Inflation is like the weather. To paraphrase Mark Twain, "everybody talks about it, but nobody does anything about it." Biden tells us he’s fighting inflation, and it seems as if we hear every day in the news about the Fed leaving interest rates unchanged to fight inflation. But prices are still high and rising. The latest numbers just released show that prices year to date are still rising faster than expected.It’s true that two years ago, inflation peaked at around 9%, and today, it’s hovering in the mid-3s. So why haven’t prices come down? It’s a common misconception, often fueled by the crowd on the left alleging corporate greed, but inflation isn’t the price level — it’s the rate of increase in prices. A reduction from 9% to 3% doesn’t mean that prices should come down 6%; it means that now they will go up at 3%. Corporations may be greedy, but that has nothing to do with the inflation rate. The government, on the other hand, plays a significant role in managing inflation and deflation through its monetary and fiscal policies. Prices going down — deflation — on the other hand, is a different story. When prices actually decline, corporations often resort to cost-cutting measures, usually at the expense of wages and benefits. And if the dollars in your pocket are worth more because of deflation, your loans or debts become more costly in real terms. This is why most economists agree that deflation is not a good thing. Think of deflation this way: if an apple costs $1, and you borrow $1 from someone, promising to pay it back in a year with no interest, if prices are stable, you’ll pay back $1 — exactly one apple. But if, because of deflation, apples at year-end cost only 95 cents, and since you owe $1, you are essentially paying back 1.05 apples. In real terms, your borrowed apple costs more than one apple when you pay it back because of deflation. Posted by: Besoeker 2024-06-09 |
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