The Third Leg of Low Prices
by Greg Perry
Are we experiencing inflation or deflation?
Economists have various opinions. That's to be expected because:
- When you ask 3 Economists a question, you get 4 answers.
- You could lay every Economist on earth end-to-end and they still would never reach a conclusion.
I am no Economist. I work for a living. (With my apologies going only to Dr. Gary North.) Since I am not an Economist, I don't have 2 answers to the question, "Are we experiencing inflation or deflation?"
I wouldn't even propose one answer. It's my guess that we're experiencing a kind of inflation but what do I know? I do understand, however, that prices are remaining relatively low for several reasons.
It's those low prices I want to address here.
How Have They Remained Low?
Consider the rise of fuel costs over the past few years. To move items from point A to point B requires fuel. When fuel rises, the price to move your goods from their manufacturers to your local store increases. Prices have to adjust to cover those costs.
Consider the rise of housing prices the past few years. To afford those houses, incomes have to rise (or costs must decrease in other areas). To pay rising incomes, businesses have to raise prices to cover their additional payroll demands.
Probably all of us complain of the high prices at the pump. And probably all of us complain of the high prices when we have to buy housing. This is for good reason because housing prices have risen dramatically and at unhistorical rates. Fuel prices — adjusted for inflation — are not at historical highs but they seem to be only because of the rapid increase we've seen over the past 2 years.
Having said all that, the cost of living actually hasn't risen as much as we might think in the past decade. Some would say that historically, prices adjusted for inflation have done very well and dropped in many areas. Consider the sub-$1,000 desktop computer you can get just about anywhere today.
Richard Russell of Dow Theory Letters (if you don't subscribe — you should), perhaps the only consistently successful financial newsletter published for 40+ years, has a theory on why prices have remained fairly low, especially in the past 5 years or so:
- China (massive production which means many goods trying to find consumers to buy those goods, typically keeping prices very low)
These two reasons are almost synonymous because Wal-Mart has been called "China's outlet store." I'm unsure who said that; perhaps it was Richard Russell.
The Left Hates Low Prices
As an aside, have you noticed how the left calls stores like Wal-Mart "Big-Box Retail"? They think that — when said with just the right disparaging tone — "Big Box Retail" makes Wal-Mart sound like a bad thing.
There's a better term for Wal-Mart's stores, however. It's "Inexpensive places that make it easy for everybody — including low-income families — to buy things they need."
The left hates it when consumers win.
Given the consistent Republican spending increases (common in all recent Republican Administrations), Republicans hate the thought of your children living debt-free. With the left and Republicans (I refuse to call Republicans "right" for several reasons), it's truly astounding that prices haven't skyrocketed and sunk all of us into an eventual depression.
Wal-Mart Likes You a Lot
Do you know what one of Wal-Mart's stated goals is? It's fascinating and would make the most effective and clear corporate mission statement ever coined by any company: "Make America a less expensive place to live."
Enter: The Third Leg of Low Prices
I believe there is a third reason that prices have remained relatively low worldwide. In addition to China and Wal-Mart, a financial mammoth has crept into millions of homes worldwide.
This mammoth has probably consumed your spouse already. Certainly it's taken hold of your teens if they buy music or movies or clothes (which means it has taken hold of your teens!).
Mammoth: Thy name is eBay.
A Libertarian's Dream?
Libertarians seem to like free markets. Actually, everybody likes free markets for themselves. But Socialists (such as Democrats and Republicans, with Ron Paul excepted) don't like you having a free market. They are control freaks and feel they are much smarter than that old, outdated invisible hand of Adam Smith's.
When it comes to our own pocketbooks though, everybody wants a free market.
eBay is a fantastic free market.
At the same time, eBay is a stunted, controlled, hindered illusion of a free market.
Strange how something can be both but eBay is.
Over 475,000 people now make a full-time living from eBay alone. Billions of bids go through eBay's system every month. You pay too much for everything you buy if you don't first check eBay.
It's my contention that the free market aspects of eBay helps keep prices down worldwide. And eBay is a worldwide phenomenon. Nothing has ever come close. Perhaps nothing ever will.
The "world's largest garage sale" has done a tremendous favor to you and to me: kept prices as low as possible. Perfect price information at every second and a superb (but not perfect) supply-and-demand matching system keeps prices everywhere else in check.
Yes, even at Wal-Mart prices have downward pressure due to eBay. eBay is one of the few entities that puts pressure on Wal-Mart instead of the other way around. It's that invisible hand thing again.
The Good and the Bad
Over the next two weeks, I'm going to give you insight into eBay through two articles here at LewRockwell.com. Even if you never eBayed before (don't you hate it when people verb their nouns?), I will show you how eBay touches your life.
eBay isn't all good. eBay isn't a perfect free market and when it's not, it's a nasty market. I'll show you why.
You need to know more about how eBay affects the lives of every person on earth, not just those having a lot of fun (and making or saving a ton of cash) buying and selling. Even if you've never been on eBay.com, you are still affected by its presence. Fortunately, you're probably affected in a good way.
You will learn to love eBay if you don't already. Unless you're in the government and you despise low prices.
August 4, 2005
Greg Perry [send him mail] might be the earth's most prolific computer book author with more than 75 titles but his passion is eBay. That's because he's so successful there. If you've ever considered eBaying something, you'll make far more money when you read his newest book, eBay eXtasy - The "Secret" to Why Buyers Will Happily Pay an EXTRA 99¢ (or More) for Each Item You Sell.]
Copyright © 2005 LewRockwell.com