Marcus: Inflation is more (or less) elsewhere

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Morton Marcus

No. I don’t have a solution for the Israeli-Arab conflict.

Instead, let’s talk about inflation.

First, stop thinking that if inflation is tamed, prices will go down. It may sound simplistic, but prices will not go down until there is a reduction in the demand for goods, or an increase in the supply of goods. And the same is true for services.

Example: my haircuts have risen in price to $21 from their long-time $15 level. That’s a 40% increase in what I pay to avoid looking like an over-weight athlete who recently escaped from the stone age.

It will take an increase in the number of barbers willing to run a mower over my scalp or a decrease in the frequency of patrons seeking haircuts to lower the price of haircuts.

Of course, it’s more complicated than that. On the supply side, older barbers are retiring. Potential barbers are being lured into coding for computer programs, probably being replaced shortly by artificial intelligence.

On the demand side, as the great swell of baby boomers pushes into their 60s and 70s, we have more patrons going bald and desiring “only a trim” with decreasing frequency. Among younger customers, shagginess is in style and getting worse for barbers.

Discussions of inflation need to recognize that all prices are relative to each other, but not necessarily linked. The prices of a quart of soy milk and a quart of luminescent paint for the Mancave are not closely linked. In addition, prices will vary by location throughout the nation.

The Bureau of Economic Analysis annually publishes “Regional Price Parities.” These data show us what it costs to buy goods and services in the various states compared to the nation as a whole.

Imagine there is a bundle of goodies you want to buy. “On average” that bundle cost $100 in 2011. However, it would have cost you $110 in New York State, $93 in Indiana (13th lowest in the nation), and $88 in South Dakota.

Now, let’s go shopping in 2021 with the latest data available. Again, let the average bundle cost $100. In New York, the price fell by 96 cents. In Indiana, its dropped by 29 cents. In South Dakota, you’ll shell out an added $2.18.

In all, relative prices rose between 2011 and 2021 in 17 states and fell in the remaining 33 states. The biggest price increase over that decade was $6.16 in Washington State. Prices fell by $7.02 in New Mexico.

Too often, federal agencies release data for the United States and fail to note the wide differences within the country.

A national number becomes a trigger for action or inaction. Public policy needs to reflect our diversity in its many dimensions. We seem hooked on seeing diversity only in people and often are oblivious to geography.

Mr. Marcus is an economist. Reach him at [email protected]. Follow him and John Guy on Who Gets What? wherever podcasts are available or at mortonjohn.libsyn.com.