Everyone complains about the rising price of gasoline, but I am seeing prices go up on just about everything.  Now some people will tell you this all goes back to oil.  Since we transport just about everything with some form of refined oil it makes sense that as the price of oil goes up so does the price on most other items we purchase.  From what I can tell this only accounts for a small portion of the price increases we are seeing.  The problem is much more complex than most people want to talk about.

The first problem is perception.  We have had a good number of years with VERY low inflation.  We as a nation are just not used to seeing prices go up.  So when they do it is a shock to our system.  Over time prices go up.  It is what it is.  We have enjoyed a time where wages increased at a higher rate than prices and now it is time for things to balance themselves out a little.

When it comes to food we have, as usual, a government problem.  The price of corn has skyrocketed.  Grains do not usually sky rocket like this unless there is an outside force (drought, flood, etc.) that has reduced the supply.  In this case demand has changed.  The U.S. government has decided to subsidize the production of ethanol which is made from corn.  So now farmers can take a portion of their crop and receive a non market driven reward for their corn.  This means corn is being taken off the market to go toward ethanol production.  This means there is a smaller amount for feeding livestock and feeding people.  Shortened supply higher prices.  If it costs more to feed a cow beef will go up in price.  Overall I think ethanol from corn is a terrible source of energy.  It is way too expensive and does not provide the kick we want.  Lets scrap that idea and work on other forms of energy that have proven more reliable.

The final problem is the monetary policy of the U.S.  The dollar has been falling in value.  When this happens prices rise.  I have not heard one presidential candidate talk about monetary policy and how the weak dollar is hurting America.   A large reason for the policy of a weak dollar is the “Housing Crisis.”  The government was not willing to sit by while the market made its correction.  People and businesses who make bad deals should have to pay the consequences of those deals, not those of us who made good decisions with our money.  When I see stories of people who are getting hurt by this “crisis” it is almost always a person or family that bought a house that was too expensive or was buying multiple house, speculating that prices would up, and got burnt.  In order to counter act this natural correction the fed (federal reserve bank) has lowered interest rates (essentially increasing the money supply) to help out the people that made poor decisions.  This decreases the value of the currency (it also lowers the interest I get on my savings accounts which makes me angry).

From what I can tell these three areas are where we are seeing our price increases.  If I had to pick the one most responsible it would be our monetary policy.  I am just beside myself with that one.  Are there areas where you are seeing a price increase?

For the next couple of days I will be showing how I am counteracting the rising costs in my life so I can still have a lot of fun in my budget.  You will not want to miss it.


This entry was posted on Thursday, April 10th, 2008 at 9:12 am and is filed under SavingFreakonomics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.