“If you think prices are too high, it’s because you’re on the wrong side of the counter. If you think hamburgers cost too much, start selling hamburgers.”
I first heard that quote more than 40 years ago on an audio tape. A friend handed me the cassette and said, “I don’t know what he’s selling, but it’s worth listening to.”
That quote stuck with me.
The real problem usually isn’t that things cost too much. The problem is that we don’t have enough money to buy everything we want.
Think about it.
Some people blame corporate profits. They argue prices would be lower if companies made less money. There is some truth to that, but there is another side. Lower profits reduce the incentive to invest and increase production. If supply shrinks, prices often rise even higher.
Another way to lower prices is to reduce production costs. Businesses can find more efficient methods or pay workers less.
But paying workers less creates another problem. People with lower wages have an even harder time buying the things they need.
Raising the minimum wage doesn’t magically solve the problem either. Higher labor costs are often passed along in the form of higher prices.
Now consider the opposite scenario.
What happens when businesses become more profitable and need to hire more workers? As the supply of available labor shrinks, employees gain bargaining power and wages naturally rise. Healthy profits give employers the ability to pay those higher wages.
I was thinking about this last week. When workers demand better pay but company profits are already thin, where does the money come from? If businesses simply raise wages and increase prices, will customers continue buying?
That brought to mind a recent jobs report. Employment increased by 172,000, yet the unemployment rate barely changed. How is that possible? More people entered the workforce. Eventually, though, we reach something close to full employment. At that point, employers compete for workers, and wages begin to rise.
I remember the oil boom in North Dakota around 2008. Wages became so high that many workers lived in trailers because housing couldn’t keep up. At the peak, some reports had McDonald’s paying around $20 an hour just to attract employees.
Of course, rising wages create winners and losers.
People still working benefit. People like me, living on retirement income and Social Security, watch our purchasing power shrink as prices climb.
(Drumroll... I suppose this is where I should beg you to buy an $8-per-month subscription.)
What started this train of thought was reading about a Japanese oil company that has developed a way to make gasoline and diesel fuel from carbon dioxide captured from the air. The process can produce net-zero carbon emissions.
The problem isn’t that it can’t be done. The problem is that it currently costs too much energy to make the fuel economically competitive with conventional gasoline and diesel.
You could also say conventional gasoline is remarkably inexpensive.
Or perhaps the new process simply needs a cheaper source of energy.
Washington State takes a different approach. It effectively treats gasoline and diesel as being too inexpensive by adding roughly 60 cents per gallon in taxes and fees. Some of that money pays for roads, but part of the policy is intended to reduce fuel consumption by making fuel more expensive. In effect, it functions as a carbon tax.
So are prices too high?
It certainly feels that way when I pay my bills, and I especially feel for people with less income than I have.
In the long run, however, there are only a few ways to make things more affordable: buy less, earn more, or increase supply.
That last solution is often overlooked.
My adopted hometown of Blaine, Washington, is trying to address high housing prices by increasing the supply of homes. City leaders are streamlining permitting and zoning to make it easier to build.
Sometimes the best way to lower prices isn’t to control them.
It’s simply to make more of what people need.