(August 12, 2018 at 7:35 pm)BrianSoddingBoru4 Wrote:(August 12, 2018 at 5:42 pm)johan Wrote: I'm no economist, therefore I don't know squat about these sorts of things. But at the same time, I've never been one to accept 'because I know and you don't' as an answer. I can certainly think of lots of examples where increased production results in lower costs and therefore lower prices. But most of those examples are in the areas of production of hard goods. But when it comes to things like services, finding a builder to build your new deck for example, increase demand generally leads to higher prices. Why should I take you shitty deck job for $5k when I charge Mr Gotbucks $8k for the same work? Also in production areas like farming, seems like increased demand only leads to higher prices. Farmer Jed plants 200 acres of corn. When suppliers can get all the corn they want and more, prices are going to drop. When there just ain't enough corn to go around, prices go up.
We as a country don't produce nearly as many hard goods as we used to and we farm less than we used to as more and more farmers realize there's better money in using the land to plant million dollar McMansions than there is in planting $0.50 melons.
So again, as someone who doesn't like to take 'because I said so' as an answer, can you explain why increased demand will lead to lower prices overall? Not really doubting you. It just seems to defy logic and I genuinely want to understand it.
Fair points all. Suppose widgets are popular in your area. You've been buying two widgets per year forever, so Widgets R Us makes enough to keep up with demand. Your wages go up and you decide to increase your purchases to four per year. Companies (both manufacturing and service) tend to project what they'll need do to keep pace with demand. If the increase in demand slackens just slightly, your widget supplier is going to have to drop prices to make the product more attractive and to keep the warehouses from over-flowing with unsold widgets.
Granted, this isn't a hard and fast rule - there are always exceptions and variables. But to address your deck-building example, most builders aren't going to permanently ignore a 5k job for an 8k one - rather than lose my business altogether, you're likely to prioritize Mr. Gotbucks' project, and get to mine a little later (this is a much better solution than having my job go to one of your competitors).
Historically, however, it has almost always been the case that wages rising faster than inflation tends to decrease prices. When the reverse happens (prices rising faster than wages), inflation tends to feed on itself - this is happening in Turkey and Venezuela right now, happened in Zimbabwe recently, and famously happened in Germany after WWI (to forestall an inevitable objection, yes, there are other factors that contribute to inflation).
Boru
I appreciate you taking the time to try and explain this further. You haven't really convinced me at all, but I appreciate the effort. Your first example doesn't seem valid at all. If my (and everybody else's) wages go up and I (and everybody else) now start buying 4 widgets per year instead of 2 thus doubling demand, why should we expect to see 'demand slacken just slightly' thus causing a drop in prices? That makes absolutely no sense.
Perhaps a year or two down the road companies in the manufacturing supply chain of widgets might see some slackening of demand if they projected the previous demand increase trend to continue. But at that point prices would have already increased quite a bit from the days when we all were buying just two widgets per year. So the net result is still higher prices just not quite as much higher as they went initially.
Then we look at our carpenter and the $5k deck job vs the $8k deck job. Anyone who has ever tried to get an electrician or plumber in to try and do a small low paying job will tell you it practically takes an act of congress and special dispensation from the pope just to get one of these guys to call you back much less actually show up to bid on the job to say nothing of actually showing up to do the work. When wages go up and the carpenter now has a waiting list a mile long for $8k deck jobs, you're going to shit out of luck getting anyone worth hiring to do your $5k job unless you're also willing to pay $8k for it. So yeah sorry, I hear what you're saying but I'm still not following it.
The only example you gave that made an sense was about how historically increased wages have always led to lower prices. I still don't understand the hows and whys behind that but historical data is hard to argue with. Except when you start to consider that we as a country have historically been much more manufacturing based and much less service based in our economy than we are now. Maybe that won't change anything and increased wages will still mean lower prices across the board. But seems like we shouldn't be shocked if that turned out to not be the case now that more of our economy is driven by providing services that tend to go up in price as demand increases.
