Prices are going up now because price setters think it will work, now

Or because it *is* working, now.

 
Reading all the time on cost-push inflation, I find sometimes statements identifying inflation as a general increase in prices. "Prices change all the time," I read the other day, "but inflation is a general increase in prices."

Prices change all the time. They're always testing the water. If they sell more than they expect at the higher price, the new low price that comes next will be higher than the old low. They're testing the water. All the time. 

If prices can go up, they will.

A thought from a couple years back:

Value is what a thing is worth. Price is what you have to pay to get it. These days, there seems to be little connection between value and price.


I like Adam Smith's idea that the value of the labor that goes into making something is the measure of the "exchangeable value" of the thing. It's an important concept because it ties monetary value to real output. I don't see "supply and demand" doing that. Not any more.

Supply and demand is just an arrangement. It's the way things happen to be, these days. When you can buy a hardened washer for your lawn tractor for $2 or $3 in one place and $12 or $14 in another, price no longer signifies something meaningful. It's just what we have to pay to get a thing. And please don't explain to me that the $14 "includes shipping". That's just another example of the exorcism of meaning from the concept of price. (Anyway, they tell you shipping is free!)

On top of that, we've got everyone from Universal Basic Income supporters to Helicopter Drop theorists saying it might be a good idea to throw money at people as a way to make the economy work better. I have to say (number one) that throwing money at people has nothing to do with the way the economy works.

I have to say (number two) that if we're throwing money at people so people can buy things, then we've got consumers with income that has no relation to what they've given up in exchange for that income.

So we've got consumers with income that is doesn't match up with work done, buying from producers setting prices that don't match up with the costs of production.

The economy exists in the exchange of value. When things are exchanged at prices that have no significance, the price system no longer conveys useful information.

And I should add:

Some people say that's a result of inflation. I say it encourages inflation.

When there is no connection between prices and costs, on either side of transactions, rampant inflation becomes a real possibility. And the obvious way to shut it down? Tight, tight money.

Does that solve the problem? No. It only stops the inflation.

Why now?

Because the covid recovery may be strong enough that prices can go up a little faster for a while. And because, with the minimum wage about to double, price setters want to take immediate advantage of the opportunity to even things up.

Prices are going up now because price setters think it will work, now.