> > What's stopping prices from rising accordingly?
> Short answer: supply & demand
This seems to run counter to the idea of inflation. Could we not apply your same argument to all goods and services? And if so why have prices consistently risen for all of human history?
I think the real answer is that NOTHING will stop prices from rising accordingly - however the purchasing-power of the average person will still increase due to in-elasticity of demand for the basic goods and services with respect to income. For example, the average American who gets $1200/mo for free would not think to spend that entire $1200 on milk, rice, vegetables and other necessities for his or her family. They would likely save some of it, and maybe spend it on luxury items or use it to help pay for a new car, new watch, etc. This means that to the bottom 50% who is struggling the cost of the necessities of life don't rise by $1200 - they maybe rise by $600 or even $800 - so its a difference of $400 of purchasing-power per-month for those people. And $400/month is actually a huge deal for people in that income group. Also, this doesn't even account for the increased wages resulting from increased consumer-spending.
I realize this logic is add-hoc so someone please tell me if/where I am wrong.
> Could we not apply your same argument to all goods and services? And if so why have prices consistently risen for all of human history?
Um, yes? But for most goods and services, prices have decreased relative to inflation. The only exceptions to this are housing, college education, and healthcare — but those are policy problems. The price of most goods and services have not only decreased relative to inflation, they have also increased in quality.
White bread, cost per pound (inflation adjusted)[1]:
1977: $0.405
2019: $1.333
Incr: 229.1%
Median personal income (inflation adjusted), age 25-34[2]:
1977: $9,336
2017: $35,455
Incr: 279.8%
So rather than being 6x as expensive(!), bread is now ~15% cheaper relative to income.
Let’s do another one. Roundtrip flight on American Airlines Flight #1 (NY to LA)
1969
Cost: $304.50 (including tax)[3]
Avg wage: $3.31/hour
Hours to buy: 92
2020
Flight: $500-600
Avg wage: $23.87/hour
Hours to buy: 21-25 (!)
Another one:
In 1997, it took 1,768 hours of work at the median wage to purchase a Dodge Caravan. In 2018, it took just 1,396 hours of work, and the quality of the Dodge Caravan has also increased in that time!
Right - so I think we are in agreement: Prices will rise, but purchasing-power of the average citizen will almost certainly increase (that is what I attempted to show by the poorly-written second paragraph).
> In 1997, it took 1,768 hours of work at the median wage to purchase a Dodge Caravan. In 2018, it took just 1,396 hours of work, and the quality of the Dodge Caravan has also increased in that time!
I’d add that price rises for bread are less to do with the fact that more people have purchasing power, and more to do with the fact that bread today is of higher quality than bread in the 70s.
I don't think this is the case - I think inflation has caused the cost of producing bread to increase thus leading to higher prices.
If anything it seems to me that bread is of lower quality these days - more GMO's and usually mass-produced using factory farming methods.
Businesses that just raise their prices would be leaving money on the table: namely the poor people that were outside of their total addressable market. Whereas before those folks would never have been able to provide revenue, with more cash in their pockets, they are now potential consumers. Increasing prices just maintains the same TAM for no real reason — you can make more revenue by serving the newly minted consumers.
> Short answer: supply & demand
This seems to run counter to the idea of inflation. Could we not apply your same argument to all goods and services? And if so why have prices consistently risen for all of human history?
I think the real answer is that NOTHING will stop prices from rising accordingly - however the purchasing-power of the average person will still increase due to in-elasticity of demand for the basic goods and services with respect to income. For example, the average American who gets $1200/mo for free would not think to spend that entire $1200 on milk, rice, vegetables and other necessities for his or her family. They would likely save some of it, and maybe spend it on luxury items or use it to help pay for a new car, new watch, etc. This means that to the bottom 50% who is struggling the cost of the necessities of life don't rise by $1200 - they maybe rise by $600 or even $800 - so its a difference of $400 of purchasing-power per-month for those people. And $400/month is actually a huge deal for people in that income group. Also, this doesn't even account for the increased wages resulting from increased consumer-spending.
I realize this logic is add-hoc so someone please tell me if/where I am wrong.