The most pleasant surprise in my first year teaching economics and government full-time was being asked to take on a financial literacy course, too. My friends and family have always teased me about keeping the thermostat at 78° during Texas summers, but it looks like such prudence paid off.

Current events have helped illustrate this class, just as they have for economics and government.

The Wall Street Journal recently detailed how consumers are making “every penny count” on groceries. Some are diluting household cleaners, while others are merely dabbing their toothbrush with toothpaste.

This is largely due to the inflationary wreckage from the Covid shutdowns a few years ago. The ascendant protectionism of the last decade has added even more upward pressure to prices.

There is a cruel irony here.

Policymakers, economic experts in the media, and academia have made no secret this century of their desire for higher inflation. It stems from both a fear of Great Depression-era deflation, and a belief that a rising price level spurs production.

This is merely another example of how far this cohort has migrated from basic economics toward a central planning frame of mind, and lost touch with the average citizen along the way.

A basic supply and demand graph does indeed show that high or rising prices attract more production. Under normal circumstances, however, this is often the result of someone striking gold with a new product, not some bureaucrat in Washington, DC, flipping a switch.

For a while, such an innovator has a corner on the market, as he’s the only producer of this new product. Operations likely being relatively small at the outset, he raises prices to keep from being overwhelmed by demand, with the higher price also indicating who values the product most.

This high demand should also lead him to start thinking long-term about expanding, and achieving economies of scale. That would eventually push down the consumer price. Inevitably, other enterprising entrepreneurs will see an opportunity to grab a piece of the pie.

The example I always use with students is the now-ubiquitous flat-screen TV.

When I bought my first one more than twenty years ago, it was a 42″ plasma that went for around $2,500. In Elf (2003), the character Miles Finch bragged about them. They weren’t cheap.

Eventually, more competitors jumped in offering the same for less. Or, they offered more features for the same price, like high-definition or app capability (smart TVs), etc. Or both.

Voila! Now, customers can get the same thing I once paid $2,500 for, at a tenth of that price. I watched Wal-Mart employees yesterday wheeling around a 98″ that goes for $1,500—more than double the TV for 60% of the price! This virtuous cycle is the organic way in which prices drop.

Most consumers would likely welcome such deflation. Not the elite establishment though, and for a couple of reasons.

By comparison, in the inverse case, when people expect a rising price level, they tend to buy stuff as soon as they get the money, before their purchasing power drops. See Venezuela or Zimbabwe for extreme examples.

It’s not illogical to assume the opposite in a state of deflation. If consumers know prices are going to go down, we’ll hold off on purchases. Why buy today if it’s pretty certain to cost less tomorrow?

But we’re Americans: we like to buy stuff, and the sooner the better. It’s practically scientifically-proven. We like to buy so many gadgets, toys, and trinkets that we have to rent storage space for our stuff.

How many cars have lost their space in the garage for exactly this reason?

And even if we do hold out, and some semblance of deflation creeps in, it would necessarily bring with it a rising value in the dollar, which would literally allow for more bang for the buck. A stout correction in that direction is long overdue.

To make that stick, however, we need leadership that stops toying with Americans and affixes a value to our currency. The last time the dollar had at least firm backing in DC, in the 1980s and 1990s, we experienced solid, steady growth with minimal interruption. The results when that’s been the case (pre-1971, the 1980s and 1990s) speak for themselves.

But here we are, so hindered by higher prices that even “cheaper generics haven’t seen a corresponding increase” in demand. We’re where experts feared we’d be, but poorer for it.

Though consumer surplus is unlikely to be included in the relatively abbreviated econ lesson in financial literacy, I might mention it nevertheless. It would be relevant to discuss what they might do with the savings such as we’ve seen with flat-screens.

If they arrive at a point in life, however, where they’re squeezing out savings by “using half the recommended amount” of “laundry powder,” they’ll already know more flat-screens aren’t in the calculus.

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Here’s a letter to National Review.

Editor:

In both style and substance, Amity Shlaes’s review of Andrew Ross Sorkin’s 1929 shines (“Sorkin Rounds Up the Usual Suspects,” November 27). Anyone tempted to buy the potted history that Sorkin peddles should consult Ms. Shlaes’s excellent review.

There are, though, two works that further bolster Ms. Shlaes’s criticisms of Ross’s book but that (doubtless because of space constraints) she doesn’t mention. These are Robert Higgs’s 2006 book, Depression, War, and Cold War, and George Selgin’s 2025 False Dawn.

Higgs argues that the Great Depression lasted as long as it did because FDR’s policies unleased what Higgs calls “regime uncertainty,” which is the severe insecurity regarding their property rights that investors suffered as a result of New Deal measures and rhetoric. This insecurity was so great that investors remained on the sidelines throughout the 1930s, thus preventing economic recovery. Higgs tested his regime-uncertainty thesis using polling data and evidence from financial markets; each test supports the claim that FDR and his New Dealers prolonged, rather than helped to end, the Great Depression.

In a complementary work – one in which he bends over backwards to be fair to Roosevelt – Selgin painstakingly investigates the consequences of each of several different New Deal programs that were meant to promote economic recovery. He concludes that, while FDR’s imposition of a bank holiday and then suspension of the gold standard in 1933 were beneficial, no one can legitimately say, “without contradicting a wealth of evidence, that most subsequent New Deal policies and rhetoric promoted recovery more than they hampered it.”

Readers genuinely interested in learning about the Great Depression and the New Deal would do well to leave Sorkin’s book on the shelf and consult instead the volumes by Higgs and by Selgin – and also, indeed, Ms. Shlaes’s own brilliant 2007 book, The Forgotten Man: A New History of the Great Depression.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

The post Don’t Be Suckered by Sorkin’s 1984ing of 1929-1940 appeared first on Cafe Hayek.

PHILADELPHIA, PA — Local man Dan Flannigan prayed this morning for the Lord to bless to the nourishment of his body the six kinds of leftover pie he would be consuming for breakfast.