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Source link: http://archive.mises.org/9041/the-force-is-with-us/

The Force Is With Us

December 2, 2008 by

It is a marvelous thing to see the market work, in good times and bad. Just look at the way that marvelous, unplanned barometer of wise resource use — the price system — has reacted in response to the human reality of economic downturn.

As we prepare for the future with the holidays upon us, consumers are wondering whether it is a wise thing to take on too many new financial burdens. They are cutting back and still somewhat indecisive about the economic climate. For most people, the only real evidence of downturn they see is the devastation that has been wrought on their retirement accounts. This causes quite a psychological hesitation to buy.

What consumers need to spend is a solid inducement, one that coordinates financial responsibility with their material needs. And the retailers are there to provide it. Thus are prices being chopped from one end of the country to the other. Earrings that were $700 are now $250, purses that were $1000 are now $250, large-screen televisions that were $2000 are now $1,200, and suits that were $900 are going for $400. Deals are everywhere, from laptops to cell phones to cars. The street wisdom is that now is the time to buy.

Imagine if these prices were fixed by a central committee. FULL ARTICLE


Mike December 2, 2008 at 10:11 am

“There is nothing that the government can do today — apart from repealing laws and regulations — that will make an improvement on the workings of the market.”

As much as I would like to believe this, but didn’t repealing laws and regulations contribute to this economic crisis; specifically, the Financial Services Modernization Act of 1999 (aka Gramm-Leach-Bliley) which repealed part of Glass-Steagall and the Commodity Futures Modernization Act of 2000 which made credit default swaps legal and free or regulation?

Stanley Pinchak December 2, 2008 at 11:08 am

massive inflation by the federal reserve and the fractional reserve banking system in coordination with government deficit spending is what caused this economic crisis, applying the economic brakes is what uncovered all of the malinvestment.

nir December 2, 2008 at 11:11 am

mike, on websites its common for newcomers to be reffered to the FAQ. in this spirit i would point you in the direction of ‘the bailout reader’

William Rader December 2, 2008 at 11:26 am

Great summary of what is happening in the retail marketplace today.

“Retailers find themselves with a serious problem of overstuffed inventory, a declining cash flow, and a financial sector that is risk-averse. The solution is to disgorge, and this accords precisely with the demand of consumers.”

All major retailers are attempting to disgorge at the lowest prices possible. This is not just true of “loss leader” types of products, but of all products which have been “overbought.” (Out-of-season products have already been dumped at thrift shops, another venue for consumers.) All major retailers are offering sales, and most are deluging customers who hold credit cards or make frequent purchases with a continuous barrage of coupons, sales vouchers, etc.

“The urgency of price declines today, then, becomes all the more apparent. Now is the time to cut prices as low as possible.”

The prices this holiday season appear to be the lowest in years. Customers will have to decide if this is the time to buy those “large-ticket items” that they have been putting off buying. They will also have to decide if this is the right time to stock up on consumer items that have been more expensive in the past.

“Yes, this means growing business failures, unemployment, and much worse, but this is precisely what is needed.”

Only some retailers will come out of this holiday season as “winners.” Others will have to begin closing stores, or reducing their lines, or shutting their doors forever. The consumers will determine who survives.

“The interests of producers and consumers are being coordinated here.”

Yes. Consumers must judge how much they wish to spend and how much they wish to save. Early returns show that price corrections are influencing customer spending. Black Friday returns show that sales were up 3% over the previous year, which is obviously good for retailers.

“For central planners to interrupt this process will only end up punishing everyone, so that consumers will not be able to save money on good deals and businesses will end up carrying more inventory than they can afford. We will be robbed of the blessing of lower prices, which are, contrary to what some people say, wholly compatible with economic growth.”

Mises would be happy to see corrections being made in the retail sector. He would be grieved, however, to learn that government is intervening in the process. Retailers must figure out which products they are able to carry, the prices at which those products can be bought and sold, how many stores will be needed to carry these products, how many employees will staff those stores, etc. Central planners cannot make these determinations. They cannot and should not be allowed to intervene in the process of correcting malinvestment.

Mike December 2, 2008 at 12:03 pm

Thanks Stanley. To clarify, my question did not ask if the Financial Services Modernization Act and the Commodity Futures Modernization Act were the cause, but if they magnified this crisis. The point I was attempting to make is that there can’t just be willy nilly repeal of laws and regulations.

As Robert Ekelund and Mark Thornton stated (http://mises.org/daily/3098), “The Financial Services Modernization Act of 1999 would make perfect sense in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance; but in the world as it is, this “deregulation” amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly.”

StatusQuoJoe December 2, 2008 at 12:49 pm

True, deals abound but really only if you have excess capital. Getting the deals with plastic won’t help much and plastic is the only alternative when you factor in basic necessities. And I believe a large portion of America sits in that camp.

Mashuri December 2, 2008 at 12:53 pm


I think the consensus here is that the government didn’t deregulate enough. In other words, they should have done more (or less, so to speak?) than just the Financial Services Modernization Act.

Stanley Pinchak December 2, 2008 at 1:43 pm

I will agree whole heartedly that uncoordinated attempts at deregulation can create perverse incentives, or exacerbate existing ones. I will also agree that certain deregulations may have aided in the direction of the misallocation of the Fed created money. In a similar vein, you may enjoy the MacKenzie blog entry from earlier today.

(8?» December 2, 2008 at 4:36 pm

Mike, just because a bill is labeled deregulation, does not mean it really is (this is politics after all, where destruction of language is the order of the day). What it really is is “reregulation,” which as usual, is just about the transfer of wealth from A to B.

What I find it bizarre though, is that the focus in all of this is not on human needs (consumption of goods & services), but on maintaining the production of the G & S required to satisfy our needs. The needs themselves are totally ignored.

“We have to save the housing industry!” they say. Meanwhile I ask, “Just how many more empty houses do we need?”

It’s as if malinvestment isn’t something to be cured, but a thing to be normalized, institutionalized, bureaucratized, and of course, idolized as the glory of “growth.”

It simply boggles the mind to think about where society could be had not this dead-end road of over-production via fractional-reserve debt-based fiat government money not been taken.

I wonder, can this collapse of society be seen as opportunity costs going to infinity?

gene berman December 2, 2008 at 8:06 pm

It is common (and not unreasonable) to disparage the determination, by a committee, of what the course of affairs shall be for everyone. And, further, it is common to find the fault of the committee to be the fact that there are “too many cooks” getting their grubby hands on the spoons stirring the soup. Too many opinions and shades of opinion.

But it’s not true.

The problem with committees and panels of experts and agencies and bureaus and other such is just the opposite: their memberships are too few in number and bring a sadly limited range of opinion on matters affecting far greater numbers with whose opinions the committees are unacquainted. To make matters even worse, committee members each an extremely limited and particularized connection with or experience in whatever happens to be the matter under consideration.

Behold the ideal committee. It comprises absolutely everybody with any interest in the matter or, at least, everyone with enough interest to “put his money where his mouth is.” Because that’s precisely what “the market” is: a committee of everybody with any legitimate business in determining the result of consideration, nicely graded to weight everyone’s opinion to just that extent of their interest as manifested by their participation in such determination. Even those committee members who don’t “vote” on some of the particular issues that arise are duly noted in the outcome (and are accorded, thereby, an even greater “say” on other issues closer to their hearts.

Nothing makes more sense or could be “fairer.” Anything other than the market makes less sense and is less fair, usually by a long shot. .

David Ch December 3, 2008 at 5:56 am

Nice perspective. What crisis? people are still eating, washing with soap they buy, living in houses thaty they either pay rent for, or pay against mortgages. I still see trucks full of stuff on the roads, containers coming and going at the harbours. People in cars going to and from work. Life carries on.

Its only a ‘crisis’ at the margin, and those operating at the margin chose to go there because thats where the potential rewards, and the concomitant risks, were the greatest. If you can’t handle high risk, you had no business speculating in territory where uncertainty is most heavily concentrated.

This line:
‘And in a crazy, upside-down way, we find politicians, financial managers, and economists quoted all over the place who have deduced that the real problem with the economy is falling prices……’

is particularly applicable, and not only to wide screen TVs and shoes. Its universal, and applies equally to bank asset portfolios. the reason banks the world over practically stopped lending to one another is because information flow has stopped. All the billions of dollars in bailouts and liquidity injections and such placed an effective cloak of secrecy over the entire banking industry’s assets, becausae it prevents them being repriced in the market. So nobody knows what any particular bank’s asets are truly worth. Let the pus rise , let the asets reprice, and the recovery will be swift , albeit painful for some. Continue to mask true asset prices, and the recovery will be lengthy and painful for many. Its simple and inevitable. Why don’t they get it?

Jack's Pipe December 3, 2008 at 10:56 pm

Ha, yes, well it may be a crisis at only the margin NOW, but the groundwork is now in place for a hyperinflationary calamity. Even the most cynical here have to be utterly in awe of the idiocy displayed by our central planners over the past few months.

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