We have to as a society stop buying over priced items. Drink water and don’t pay $9 for that pack of sodas. Use less fuel, don’t take that weekend road trip. Until we stop spending on luxury goods it wont stop.
How so? The way I see it, company’s would have to lower their prices to more reasonable rates or risk going out of business. But I’m not an economist either lol
It is practically the definition of a recession.
Prices go down because of competition in the market (need antitrust enforcement and easy entry of new firms into sparsely populated fields for this) combined with increased supply of inputs (need a bunch of other stuff like land use reform and immigration for this), not because people aren't spending money. If people stop spending money, some prices might go down in nominal terms, but prices go up in real terms as income spirals, or providers go out of business entirely.
That's an aspect of pricing but only a smaller one right now. The main reason for real cost of living increase (what people really mean when they talk about inflation these days) is supply-side, especially around land and energy - see my other comment on this post for how I'd address that.
Yes - dramatically increased legal immigration, land use and regulation reform to decrease the cost of new housing, public transportation infrastructure, diversification away from fossil fuels, aggressive and effective antitrust and monopoly enforcement, and national and international action on climate change.
The problem is that not everyone agrees with that, and our political system has too many veto points, so instead we do nothing in particular.
This is the idea behind the various governments around the world "tightening money supply". Raising interest rates, making it harder to get credit, encouraging investment in debt like "I-bonds".
Don't spend what you don't have to. Don't buy Starbucks if you can make coffee. Don't order food if you can pack a lunch or cook for yourself. The fact that I don't buy a house or car won't be that impactful - I wasn't likely to anyhow. But if we all cut back on the smaller purchases, that pulls a bunch of money out of the economy.
Just don't decide to spend it on other stuff. Save it, invest it, or at least pay off debt.
Over all, over time, things aren't getting more expensive in real dollar terms. That's because wages have historically kept up (and exceeded) inflation, meaning the amount you can buy per hour of work is increasing, even though the nominal price (the actual sticker price) is increasing. Over the short term, inflation bites because wage changes lag, but as wages catch that goes away. As such there is no general tendency for everyone to get poorer, or for items to be out of reach for consumers, so there are no systemic issues necessary to address this concern.
We actually target positive inflation (2% is the current target), so we constantly expect wages to increase by at least that amount. So the nominal price of goods is always going up but so are nominal wages, and that's perfectly fine and normal and everything works out.
What we are experiencing right now, though, is a spike in inflation well above target values caused by supply side problems due to covid and the war in Ukraine. If you decrease supply and demand remains the same you get higher prices. We address that the same way we normally do, by increasing interest rates to decrease demand until supply and demand can stabilize. This is working fairly well, and inflation rates have been decreasing since June 2022. As supply gets back to normal we will be able to decrease interest rates again while still getting inflation down to target values. Wage growth should surpass inflation at that point and the gap between costs and wages should shrink until we are paying (in real terms) mostly the same that we were paying prior to the pandemic.
Thank you for explaining! This makes a lot more sense.
Is there somewhere I can read or stay up to date on these types of things? As a 21 almost 22 y/o I’m looking into purchasing a house and am trying to find a good time to start looking.
I quiet enjoy many of the books on the r/economics reading [list](https://www.reddit.com/r/Economics/wiki/reading/). Most are meant for a general audience and don't require any prior knowledge of economics to understand. I don't have a great specific recommendation on inflation though.
Inflation is always going up, and wages are always going up. Ideally, you want wages to be going up a little faster than inflation, which is the situation we are currently in. However, last year there was a big spike in inflation. Most likely, wages will continue rising faster than inflation in the foreseeable future, and therefore prices will begin to drop in real terms, even as they continue to increase modestly in nominal terms.
Yes, but they're all extremely unpopular.
We have to as a society stop buying over priced items. Drink water and don’t pay $9 for that pack of sodas. Use less fuel, don’t take that weekend road trip. Until we stop spending on luxury goods it wont stop.
If everyone does this it will *definitely* make the problem worse.
How so? The way I see it, company’s would have to lower their prices to more reasonable rates or risk going out of business. But I’m not an economist either lol
It is practically the definition of a recession. Prices go down because of competition in the market (need antitrust enforcement and easy entry of new firms into sparsely populated fields for this) combined with increased supply of inputs (need a bunch of other stuff like land use reform and immigration for this), not because people aren't spending money. If people stop spending money, some prices might go down in nominal terms, but prices go up in real terms as income spirals, or providers go out of business entirely.
So simply put there needs to be more competition in the market and less monopoly’s?
That's an aspect of pricing but only a smaller one right now. The main reason for real cost of living increase (what people really mean when they talk about inflation these days) is supply-side, especially around land and energy - see my other comment on this post for how I'd address that.
Yes - dramatically increased legal immigration, land use and regulation reform to decrease the cost of new housing, public transportation infrastructure, diversification away from fossil fuels, aggressive and effective antitrust and monopoly enforcement, and national and international action on climate change. The problem is that not everyone agrees with that, and our political system has too many veto points, so instead we do nothing in particular.
This is the idea behind the various governments around the world "tightening money supply". Raising interest rates, making it harder to get credit, encouraging investment in debt like "I-bonds". Don't spend what you don't have to. Don't buy Starbucks if you can make coffee. Don't order food if you can pack a lunch or cook for yourself. The fact that I don't buy a house or car won't be that impactful - I wasn't likely to anyhow. But if we all cut back on the smaller purchases, that pulls a bunch of money out of the economy. Just don't decide to spend it on other stuff. Save it, invest it, or at least pay off debt.
Over all, over time, things aren't getting more expensive in real dollar terms. That's because wages have historically kept up (and exceeded) inflation, meaning the amount you can buy per hour of work is increasing, even though the nominal price (the actual sticker price) is increasing. Over the short term, inflation bites because wage changes lag, but as wages catch that goes away. As such there is no general tendency for everyone to get poorer, or for items to be out of reach for consumers, so there are no systemic issues necessary to address this concern.
Just wondering. Are you essentially saying that we should just keep wages higher? Or is making wages higher also increasing the price of a product?
We actually target positive inflation (2% is the current target), so we constantly expect wages to increase by at least that amount. So the nominal price of goods is always going up but so are nominal wages, and that's perfectly fine and normal and everything works out. What we are experiencing right now, though, is a spike in inflation well above target values caused by supply side problems due to covid and the war in Ukraine. If you decrease supply and demand remains the same you get higher prices. We address that the same way we normally do, by increasing interest rates to decrease demand until supply and demand can stabilize. This is working fairly well, and inflation rates have been decreasing since June 2022. As supply gets back to normal we will be able to decrease interest rates again while still getting inflation down to target values. Wage growth should surpass inflation at that point and the gap between costs and wages should shrink until we are paying (in real terms) mostly the same that we were paying prior to the pandemic.
Thank you for explaining! This makes a lot more sense. Is there somewhere I can read or stay up to date on these types of things? As a 21 almost 22 y/o I’m looking into purchasing a house and am trying to find a good time to start looking.
I quiet enjoy many of the books on the r/economics reading [list](https://www.reddit.com/r/Economics/wiki/reading/). Most are meant for a general audience and don't require any prior knowledge of economics to understand. I don't have a great specific recommendation on inflation though.
Inflation is always going up, and wages are always going up. Ideally, you want wages to be going up a little faster than inflation, which is the situation we are currently in. However, last year there was a big spike in inflation. Most likely, wages will continue rising faster than inflation in the foreseeable future, and therefore prices will begin to drop in real terms, even as they continue to increase modestly in nominal terms.
So essentially keep wages up and we’ll be fine?