Repeat It Over and Over Again, Economic Growth Is All About Falling Prices

Economists fear falling prices, which means the pundits they interact with fear falling prices. The basis of the nailbiting within the economics profession has to do with their wholly confused belief that consumption powers economic growth. Since they believe what is completely absurd, they worry that falling prices will cause consumers to not spend in anticipation of lower prices down the line.

Back to reality, no act of saving short of stuffing one’s money under a mattress subtracts from consumption as is. What we don’t spend is “rented” by financial intermediaries to individuals and businesses who presently want or need to spend. The only demand depressant in existence is a lack of production, though it should be said that this truth is lost on economists ever focused on consumption.

From there, it’s worthwhile to point out that a growing economy is logically defined by falling prices of all manner of goods and services. That is so because savings are investment, and investment is all about the matching of production with capital so that more and more goods and services can be produced at prices that continue to fall.

Think 4K UHD flat-screen televisions. When they were created however long ago, they were very rare. And very expensive. The “venture buyers” of these formerly elite televisions paid in the $25,000 range to get one. Now they can be had for a few hundred dollars. Deflation? Not at all. A falling price by definition signals a rising price elsewhere. Translated, falling prices unearth new wants.

The main thing is that real economic growth is born of savings and investment, and the latter relentlessly pushes down prices. Hopefully readers see where this is going. The surest sign of economic growth is falling prices, not rising prices. Economists and pundits have it backwards.

Evidence supporting the above claim concerns reverence within the economics profession for 2% annual inflation. It would all be funny if it weren’t so sad. Fed officials literally aim for a 2% annual rise in prices as a way of keeping buyers buying. They’re cheered on by reporters with last names like Irwin, Smialek, and Timiraos who imagine Fed officials are doing something that’s rather intricate. To economists, the economy is a literal engine that needs to be constantly tweaked. Reporters have bought into the falsehood. Apparently 2% is what keeps prices in check, but also keeps buyers in stores.

Actually, what keeps buyers in stores is production, and production is a consequence of investment. And investment is once again informed by the desire of producers to compete, and they compete by producing more and more goods and services at prices that continue to fall. Put another way, producers are the actual economy, while economists are the interventionists endlessly fiddling with the economy that they imagine exists, but that doesn’t.

Contra the view of economists that we need ever-rising prices engineered by them to progress, producers in the actual arena work tirelessly to bring down the price of everything. Consumers know prices will come down, but it’s worth stressing yet again that the only barrier to consumption is a lack of production.

After that, thank goodness for those in the arena. Looked at another way, if the Fed actually could centrally plan some kind of 2% annual price increase for goods and services, life would be very bleak. That is so because prices are the way that the market economy organizes itself. If economists could control prices there wouldn’t be much of an economy.

It’s something to think about with Christmas on the way. Readers are about to hear all manner of commentary about too little or too much consumption, not to mention the prices at which the consumption takes place. Falling prices are bad, don’t you know? Actually they’re the norm when individuals in the real world are actively producing thanks to savers saving. It’s the economy, stupid, the only thing is that the economy is lost on economists.

Source: https://www.forbes.com/sites/johntamny/2022/12/18/repeat-it-over-and-over-again-economic-growth-is-all-about-falling-prices/