Wednesday, November 6, 2013

Business Insider: Low Price Haters

Business Insider's Steven Perlberg is out with an absurd post, Here's Why Falling Prices Are Horrible.

He brings in Paul Krugman to make the anti-falling prices case, apparently not realizing that Krugman's entire theory is based on a misunderstanding of a babysitting coupon co-op study.

And Perlberg adds his own reality defying spin to the concept:
Paul Krugman has a great explanation here of why that's a bad thing, the thought being that if prices are constantly dropping, consumers will delay spending. Why buy that F-150 today when it will be effectively "cheaper" next week?
Does this guy live in the real world? Does he not realize that computers,television screens and cell phones are getting more sophisticated (i.e.productive) and falling in pricebut that people still buy them and companies are able to profitably make product despite the falling prices?

Bottom line: Lower prices are better, it's defies the laws of basic economics to think otherwise.


  1. It seems to me that the common thread in these types of economic arguments (by Krugman and the like) is that the general public ends up being Amity Shlaes's "forgotten man". The lowest priority for them is the rise in the general public's standard of living.

    I love how these guys don't understand time preference, either. Amazon lets me pay more to have my item shipped overnight or I can have it shipped for free in 5-7 business days. They've had both of these options for years, so obviously there are people acting with a high time preference even when the same items are available for less money by waiting.

    As long as I'm talking about time preference, shouldn't we desire to have consumers delay spending? Of course, arguing about the merits of savings with a Keynesian is as productive as arguing about religion.

  2. Hmm, maybe because my old F-150 stopped running and it's cheaper to replace it than fix it. Or maybe it's totally dead and I am grateful that for once in my life, prices are actually falling for trucks, rather than inexorably rising as they've always done. Or maybe I just like driving new trucks and this makes my preference more affordable.

    You'd think even a Keynesian would understand the effect prices have on demand and supply curves.

    1. "You'd think even a Keynesian would understand the effect prices have on demand and supply curves."

      The ultimate irony is that Keynesians think they understand enough to actually "manage" the economy via various fiscal & monetary policies.

      When you point out additional factors they might have missed it's almost maddening, because it is almost like encouraging them in a way in their minds...they don't look at things from the perspective of managing the complexity of markets with humility...instead they might say, "You know, you're right, maybe you should be on a panel, board, etc. and help out."


  3. Paul Krugman lives in the land of nod. He has theories of how the private sector economy works, but only theories, since he's never had to hold a job where people actually hold him accountable for being right.

  4. buy inventory for 10,000. Sell it for 9,000 due to falling prices. 1000 loss. going out of business sign put up in window.

    1. A smart businessman or corporation in a stable market can account for deflation in pricing. When money creation distorts not just asset values but markets themselves and creates volatility it is obviously much harder to make good business decisions.

    2. Astute as always, Jerry. Maybe someone should devise a way to account for this. Perhaps you could value and manage your assets using something like a first in, first out system. I wonder why no one ever thought of that before.