Why Inflation Is Much Worse Than the Headline Numbers Suggest(thesoundingline.com)
thesoundingline.com
Why Inflation Is Much Worse Than the Headline Numbers Suggest
http://thesoundingline.com/why-inflation-is-much-worse-than-the-headline-numbers-suggest/
13 comments
"inflation in everything you need, deflation in everything you make"
Everyone needs food, farmers need equipment, I make equipment for farmers therefore my wages should grow instead of stagnating based on that statement? Or does the statement mean that the actual profits go to the select few that own companies that produce the stuff you need?
Everyone needs food, farmers need equipment, I make equipment for farmers therefore my wages should grow instead of stagnating based on that statement? Or does the statement mean that the actual profits go to the select few that own companies that produce the stuff you need?
I think "everything" is an exaggeration, but it's not entirely wrong. The main sectors to experience runaway inflation have been health care, college tuition, and real estate in major cities. Housing is a necessity while the others while not absolutely non-negotiable are pretty solidly in the "need" category.
The price of things that are subsidized has gone up and the prices of things that are not has not.
Too much of the complaints about prices seems like the 70's redux to me. At that time inflation was sky high. What was the fix? Wage and price controls. Whip Inflation Now. Why? Because those fixes are politically popular. We'll go after gougers so honest people can get on with their lives.
Here's the thing. It doesn't work. The joke is that if you have the votes you can make Monday Sunday. But you can't. Pass all the laws you want and Monday is Monday and Sunday is Sunday. Pass all the laws you want saying the price of X should be $Y and it's not going to happen.
As a digression, there's a reasonable argument for Net Neutrality. I don't really agree with it but I can see it. The unreasonable argument for it is that Internet access costs too much and we're going to regulate the price down. That's like voting money for yourself. It doesn't work.
The fix for inflation in 70's was to raise the cost of money i.e. jack up interest rates. That makes everyone unhappy. But here's the thing; it works. Inflation went down. If you want to keeps costs down cut off the supply of money and figure out how to get more people to sell the goods/services you're interested in.
Why aren't there more Hospitals? Why aren't there more health care providers? Why aren't more companies producing medical goods? Why aren't there more insurance providers.
More competition and reduced subsidies doesn't really make anyone happy though.
Too much of the complaints about prices seems like the 70's redux to me. At that time inflation was sky high. What was the fix? Wage and price controls. Whip Inflation Now. Why? Because those fixes are politically popular. We'll go after gougers so honest people can get on with their lives.
Here's the thing. It doesn't work. The joke is that if you have the votes you can make Monday Sunday. But you can't. Pass all the laws you want and Monday is Monday and Sunday is Sunday. Pass all the laws you want saying the price of X should be $Y and it's not going to happen.
As a digression, there's a reasonable argument for Net Neutrality. I don't really agree with it but I can see it. The unreasonable argument for it is that Internet access costs too much and we're going to regulate the price down. That's like voting money for yourself. It doesn't work.
The fix for inflation in 70's was to raise the cost of money i.e. jack up interest rates. That makes everyone unhappy. But here's the thing; it works. Inflation went down. If you want to keeps costs down cut off the supply of money and figure out how to get more people to sell the goods/services you're interested in.
Why aren't there more Hospitals? Why aren't there more health care providers? Why aren't more companies producing medical goods? Why aren't there more insurance providers.
More competition and reduced subsidies doesn't really make anyone happy though.
>Why aren't there more Hospitals?
In most states building or expanding a hospital requires getting a Certificate of Need establishing that you won't be competing with existing providers.
>Why aren't more companies producing medical goods?
If you're competing with one of the big guys and they don't like you they can find some FDA reg you might plausibly be violating and sue the FDA to get them to shut you down. They generally have more expensive lawyers than the FDA can afford so they'll often get their way if their case it even only vaguely plausible. Or at least this is why the US doesn't have epinephrine injectors competing with EpiPen, I'm not sure it's the main reason.
The same feedback-by-lawsuit mechanisms work fairly well in other regulatory contexts, though.
>Why aren't there more insurance providers.
Insurance provider profits are capped by law so I'm not sure adding more of them would actually help. Especially since they all have a pretty hefty fixed overhead in terms of negotiating rates with hospitals.
In most states building or expanding a hospital requires getting a Certificate of Need establishing that you won't be competing with existing providers.
>Why aren't more companies producing medical goods?
If you're competing with one of the big guys and they don't like you they can find some FDA reg you might plausibly be violating and sue the FDA to get them to shut you down. They generally have more expensive lawyers than the FDA can afford so they'll often get their way if their case it even only vaguely plausible. Or at least this is why the US doesn't have epinephrine injectors competing with EpiPen, I'm not sure it's the main reason.
The same feedback-by-lawsuit mechanisms work fairly well in other regulatory contexts, though.
>Why aren't there more insurance providers.
Insurance provider profits are capped by law so I'm not sure adding more of them would actually help. Especially since they all have a pretty hefty fixed overhead in terms of negotiating rates with hospitals.
> Insurance provider profits are capped by law
Doesn't that give them incentive to make things cost more, as their profit is capped as a percentage? "Oh I can only have 2% profit, fine we will lobby and push for new tech that make surgery b cost 10x as much.
Doesn't that give them incentive to make things cost more, as their profit is capped as a percentage? "Oh I can only have 2% profit, fine we will lobby and push for new tech that make surgery b cost 10x as much.
A lot of the restrictions on supply in the US medical system were actually put there as a way to keep down costs, especially by the Nixon administration. Ideally you would find some way to lower the price of a unit of medical care but that would tend to lower doctors' and nurses' wages and the public likes doctors more than politicians so that wouldn't have been the easy way.
If your only concern is lowering spending then restricting supply will in fact do that. Per unit cost will go up but the total amount that the public would be willing to pay for a low supply is lower than what the public would pay for a high supply. It's just that other politicians saw the problem with limited access and decided to solve it by subsidizing healthcare or in some cases just paying for it. Removing restrictions on supply would, again, have cut into doctors' and nurses' wages.
The US government requires hospitals to treat the indigent for free and to treat Medicare recipients at cost but that just means that the hospital has to make back its costs elsewhere if it wants to stay in business.
I'm honestly half convinced that the only way we'll ever fix our mess is nationalization. But because the government finds it so hard to cut wages and because it also finds it hard to appoint "death panels" to decide which treatments are cost effective I'm doubtful that even that will do much to hold down costs.
If your only concern is lowering spending then restricting supply will in fact do that. Per unit cost will go up but the total amount that the public would be willing to pay for a low supply is lower than what the public would pay for a high supply. It's just that other politicians saw the problem with limited access and decided to solve it by subsidizing healthcare or in some cases just paying for it. Removing restrictions on supply would, again, have cut into doctors' and nurses' wages.
The US government requires hospitals to treat the indigent for free and to treat Medicare recipients at cost but that just means that the hospital has to make back its costs elsewhere if it wants to stay in business.
I'm honestly half convinced that the only way we'll ever fix our mess is nationalization. But because the government finds it so hard to cut wages and because it also finds it hard to appoint "death panels" to decide which treatments are cost effective I'm doubtful that even that will do much to hold down costs.
I have never heard anyone argue for Net Neutrality as a means to lower price. It has always been about preventing gatekeepers to the internet.
Healthcare and education are heavily subsidized, but electronics and clothes much less so. To buy clothes and electronics on credit requires credit card debt as high as 20%/year but student loans are just 5%/year, and unlike electronics, education gains value to to increased wages and better job prospects.
They also can't easily be outsourced, which this article mentions as a much more significant factor.
See [1] for a more in-depth analysis of this, and much more.
"In America, for example, the benchmark measure of inflation (CPI-U) has been modified by ‘substitution’, ‘hedonics’ and ‘geometric weighting’ to the point where reported numbers seem to be at least six percentage points lower than they would have been under the ‘pre-tinkering’ basis of calculation used until the early 1980s."
[1] https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/P...
"In America, for example, the benchmark measure of inflation (CPI-U) has been modified by ‘substitution’, ‘hedonics’ and ‘geometric weighting’ to the point where reported numbers seem to be at least six percentage points lower than they would have been under the ‘pre-tinkering’ basis of calculation used until the early 1980s."
[1] https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/P...
Under communism people used to say: "Bread is more expensive but locomotives got cheaper".
Is there a similar article for any European country ?
The general phenomenon described by this article is something I've heard referred to as "in-deflation" in a couple places: inflation in everything you need, deflation in everything you make (and thus wages). It's been the economic condition of the US and to some extent Europe since roughly 2001-2002.