I forget who I’m paraphrasing here, but the two iron laws of modernity are 1) things are getting better, and 2) people think they’re getting worse. The short video at the bottom of this post is one way to prove the first law to victims of the second law. It’s a rough cut adapted from a recent talk Don Boudreaux gave; I eagerly await the full version.
When I took macroeconomics in graduate school, the professor circulated a Sears catalog from 1900 or so around the classroom. Most of the prices were given in cents, not dollars. Now imagine that you could buy anything you wanted from that catalog today at those low prices. They’re still too expensive. Take these vacuum cleaners pictured below:
[click to continue…]
Express, a publication of The Washington Post, notes that as a result of a stoppage in mortgage foreclosures: “Prices might stabilize because so many homes are penned up.”
The underlying logic is that:
(1) If there are fewer foreclosures today, then the supply of houses on the market will be reduced.
(2) If supply is reduced, prices will go up (or “stabilize,” i.e., not go down).
Their logic is sound, but they must follow through with the analysis. Yes, the foreclosures are delayed. But we know that they are coming eventually. Therefore in, say a year, we expect prices will decrease once the foreclosure process is re-initiated because those houses then show up on the market.
They [Express] imply that expected future prices are lower than today’s current prices. This won’t do however.
If sellers expect that prices will fall in the future, they will want to sell at today’s relatively higher prices. As a result more people start selling now which increases today’s supply and this brings down today’s prices. This will continue until future prices are equated with today’s prices. Why? Because if expected future prices are low relative to today’s prices more people would like to sell to capture the relatively higher selling prices of today.
A similar effect occurs on the demand side of the market: some potential home buyers expecting prices to fall in a year will wait to buy, until houses become relatively cheaper. Fewer home buyers today mean less demand today, and this entails lower prices today.
The main idea here is that expectations of future prices held by sellers and buyers affects today’s prices, such that future prices and today’s prices move to equality. In this case it means prices go down. The unfortunate take away from this is that the healing period is far from over.
A new Maryland law makes it illegal for manufacturers to set a minimum retail price for their products in sales contracts. The law is meant to increase competition. Unfortunately, it will have the opposite effect.
As Wayne Crews and I explain in the The American Spectator, it could prevent retailers from competing with each other on non-price grounds, such as customer service, product demonstrations, and advertising.
Some products, such as televisions or cars, have high information costs. Customers want to know a lot about these products before they commit to a purchase. They want to know what they’re getting. Try before they buy.
By forcing retailers to compete against each other to give customers more and better information and service, minimum price agreements can help consumers get what they want and boost sales at the same time.
Sugar got front-page notice from the Wall Street Journal today. The article focused on a letter sent to the Secretary of Agriculture to increase the amount of sugar that can be imported without tariffs. Prominent food firms as well as several nonprofit groups, including CEI, signed the letter.
Currently, U.S. sugar users are facing steep prices and a shortage of sugar. Under the U.S. sugar program – a system of price supports and import restrictions — there are quotas on the import of tariff-free sugar. The USDA and the U.S. Trade Representative administer the import quotas for sugar, which must be consistent with the U.S. commitments to the World Trade Organization. That quota amount is allocated to 41 countries, which means that the sugar can enter the U.S. duty-free or with a low tariff. Import amounts above that face a steep tariff, unless the USDA determines that the domestic supply can’t meet the demand and increases the quota amount.
That’s what the letter is asking:
Without a quota increase, consumers will pay higher prices, food manufacturing jobs will be at risk and trading patterns will be distorted. Please act now in the interest of all Americans.
According to earlier studies by the General Accountability Office and the OECD, the cost of U.S. sugar policies to American consumers ranges from $1.5 billion to $1.8 billion. See here and here for CEI publications on the sugar issue.
Following the economy, especially lately, can be confusing. Reporters are not helping matters.
A CNN.com article, for example, blames yesterday’s stock market plunge on a selloff.
But there was no selloff; every seller requires a buyer.
Just as more people were selling, so were more people buying. Describing yesterday’s market as a selloff only tells half the story.
The same article says that today’s 600-point gain happened when “investors scooped up a variety of shares.” But those buyers cannot buy unless somebody sells to them. Again, the article only tells half the story. And here is one case where two halves do not a whole make.
So what really happened yesterday and today? High trading volume. That may not sound very exciting. But at least it’s accurate.
Flaws and all, the article can still teach us an important lesson, if only we let it: sometimes financial reporters don’t know what they’re talking about.
Don’t believe everything you read, in other words.
Something to keep in mind while trying to make sense of these troubled times.
Chevron has plastered a series of posters all over the Washington, D.C. metro system as part of an advertising campaign titled, “will-you-join-us?” Join Chevron how? By becoming an employee and helping Chevron produce the petroleum products consumers need? Nope. By buying Chevron stock and becoming a shareholder? No again. By joining the fight against anti-consumer policies like oil drilling bans and carbon cap-and-trade schemes? Not a chance.
Each poster features an earnest-looking adult who vows to consume less energy—or at least think about it. Here are some of the captions: “I will use less energy,” “I will leave the car at home more,” “I will unplug stuff more,” “I will reuse more stuff,” “I will finally get a programmable thermostat,” “I will carpool to work,” “I will consider a hybrid” (how bold!), and (bolder still), “I will take my golf clubs out of the trunk.”
To join Chevron means repenting of our fuelish ways. It means buying less of Chevron’s products. But if buying less is good, then buying none is better. Doesn’t Chevron CEO Dave O’Reilly understand this simple logic?
Maybe Mr. O’Reilly thinks Chevron will earn green brownie points by talking as if oil consumption were an addiction to be broken. But de-legitimizing his company’s product is suicidal, because instead of appeasing those who seek to tax and regulate Big Oil out of existence, disparaging energy use will only reinforce the perception that the oil bashers occupy the moral high ground.
Until and unless Chevron changes its tune and starts explaining why abundant, affordable energy is essential to human flourishing, I will “join” Chevron by boycotting its products. And if enough consumers join the boycott, then maybe, just maybe, Chevron will wise up.
RSS Updates 
RSS E-Mail Updates 
Twitter 
Facebook 
CEI.org 
WorkPlaceChoice.org 
GlobalWarming.org 
CEI On Demand Video 
Liberty Week Podcast 