PicoBusiness

What?? How is that possible? I hear you ask.

Honestly, I struggled with this for several months now. I knew that according to Friedman, “Inflation is a monentary phenomenon” (which means it’s caused by the government’s management of the money supply). But this didn’t square with the obvious fact in front of me: Oil prices are up, which means that food prices are up, flying costs more, etc. Prices are going up, not because of the government, but because of oil.

And it is true - certain prices are going up. But lets take a trip to the gas station as an example. Last year, you went to the gas station every week with $60. It cost you $30 to fill up, and you went inside and bought a big gulp and a bag of chips, which totaled $5. So you leave the gas station with a full tank and $25 to spend on other things - say, for example, dinner out some weeks, or a new DVD on the others.

This year, you again go to the gas station with $60, but it costs you $50 to fill up because the price is higher. Now you go inside and…. maybe you buy nothing. Maybe you don’t bother with the chips, and just buy the soda, spending only $2, instead of $5. So now you leave the gas station with $8 to spend on other things.

You won’t be buying dinner out for $8 and you won’t be buying a DVD for $8 either. You’re going to have to substitute something else - something cheaper. Like a movie on On-Demand cable, or a frozen dinner at home.

…So what?
Well, last year, your decision to eat out increased the demand for restaurants. Your decision to buy a DVD increased the demand for DVDs.

But now, you aren’t eating out, and you’re not buying DVDs. The demand for those goods is falling. The poor restaurant owner is obliged to find ways to cut costs or reduce profits in order to reduce the cost of his service. At the same time, he has higher food prices to contend with, and this will be a real struggle for him. On the other hand, the movie studios pay almost nothing for each DVD they make - they can easily drop the price of their DVDs to get you to spend your money on them.

You may not have quite the same experience watching a movie on-demand at home over a frozen dinner than you would going out and having a nice dinner at a fancy restaurant.

But you are affecting prices with your decisions. Some prices will go up, others will come down. Some restaurants will go out of business, because they can’t handle the reduction in income at the same time they are experiencing an increase in costs. Others, which may have better cost management techniques or more profits, can weather the storm.

Inflation, in its truest form, is increases in prices where you have no alternative - no way to choose to spend on X instead of Y to save money. According to Friedman, that only happens because of government’s interaction with the money supply.

http://www.overcomingbias.com/2008/04/prevention-cost.html

The claim: Because prevention techniques have to be widespread to be effective, the cost of making them widespread dwarfs the benefit of reduction in the disease. In other words an ounce of prevention costs more than a pound of cure.

Political Observations

1. The vast majority of pundits, when faced with a crisis, will claim that the crisis would have been averted if only we had done what they told us to do.
2. Alternatively, they will say that the crisis happened because of the actions/policies of their rivals. Hah hah! They say. This is why you should never listen to _______
3. Pundits will generally ignore the complexities of issues in order to make their point clear. That is what makes them dangerous, and what makes it foolish to listen to them without a truckload of salt. There are no simple issues.
4. You can point out that an issue is complex to a pundit, and they will ignore you, or mock you. Because admitting that the world is complex and that their philosophy isn’t perfect hurts their pocketbook.
5. I’ve noticed a surprising tendency amongst progressives - they believe that corporations can brainwash people into buying their products like slaves, and they believe that journalists can brainwash people into caring about certain topics. Didn’t Air America disabuse them of this notion? Note: At least they’re consistent on this (fairly silly) belief.

Business observations

• I listened (on the radio) to the owner of a landscaping company say that without lower-wage illegal immigrants on his payroll, his costs would be too high, and he would go out of business. Really? No one will want landscaping at all if it costs a bit more? All of his competitors are well-prepared for this contingency? I’m not particularly indignant about immigration, but this argument is lame.
• Right now the business world is essentially all-doom, all-the-time. Historically, this is usually the time when it turns around.