How cheap?

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How cheap is cheap?

There was a time when a shopper could be surprised by a low price. In 2004, I was browsing in a Pier One store. I spied a cute green glass carafe with a drinking cup on top for $4.99. It was imported from China. How is that possible? I thought. Just to move that item from Shanghai to Los Angeles to Chicago had to cost more than $5! My second thought: Cool! I’ll buy it.

The uptick of cheap consumer goods from China started when the country was admitted to the World Trade Organization (WTO) in 2001. By the end of that year, US imports from China were $100 billion. When I bought my glass carafe at Pier One three years later, Chinese imports exceeded $300 billion.

I was shocked by the low prices at Pier One because I grew up in a time of expensive consumer goods: furniture, typewriters, clothes, books, toys—these were not cheap. Now I expect younger folks will experience this shock in reverse because . . .

The era of cheap is over.

Economic journalist Rana Foroohar explains:

The past five years — which have featured a pandemic, the war in Ukraine and the aftermath of both — signal the end to an economy that was based on cheap everything: cheap money, cheap energy and cheap labor. All of that is going away or gone. A decade and a half of go-go speculation is finished. The era of cheap is kaput.

The price hike transition won’t be easy for American consumers. Convenience and low cost have been bedrock assumptions for some time. Easier and cheaper . . . that’s what we want and what we expect. And when shoppers don’t get what they want—they can be awful:

‘In our culture, we have excessively high expectations,’ said Robin Kowalski, a psychology professor at Clemson University who studies complaining. Not just high expectations, but specific ones, about how the economy should run and what we should get out of it. We want things to be cheap, we want things to be fast, we want things to be efficient. . . .

People aren’t accustomed to having to really think about the trade-offs . . . and when they do have to think about it, they don’t like it. Consumer-centric culture has made it easier for us to be destructive . . . to workers, to the environment, and to each other. Corporations have manufactured [and profited from—ed.] our high expectations, and it’s hard to reverse course.

Consumerism aside, let’s reflect on this: being obnoxious in public is such a thing that a research psychologist can devote her career to studying complaining.

Economists have models and those models say prices are never going back down.

[I]ndividual product prices might fluctuate. But over the long run, the overall price level across an economy — basically, the average price of all the things consumers buy — still trends upward. That’s by design.

Economists generally consider an upward trend in prices a good thing, as long as it’s happening at a modest, steady and predictable pace. Some limited level of price growth is believed to help facilitate economic expansion, reduce the risk of recession, and help businesses and consumers plan. For these reasons, for many years, the Fed has targeted annual price growth of 2 percent. That is, the Fed wants prices to be growing, just a little.

In other words, TPTB want upward-trending prices; that’s why our economic institutions support moderate inflation.

How will higher prices affect the vast majority of working people? It depends on who wins the upcoming political battle. If conservatives prevail, the “supply side” policies of the past will continue and even more wealth will flow upward. Billionaires will be happy and the rest of us will be sad. Inequality will increase and the middle class will shrink.

If President Biden succeeds, federal investment in construction and infrastructure— as well as administrative support for workers’ rights—will (hopefully) return the American economy to the post-war model of regulated capitalism. “Bidenomics” aims to reduce inequality and produce the more stable economic growth patterns of the 1950s and 1960s. It’s a challenge, to be sure, but early results are promising.

Business writer Catherine Rampell looks at the numbers and wonders why the public is sour on the economy:

Remarkably, the U.S. economy is not only exceeding those pessimistic forecasts from a few months ago — it’s also exceeding forecasts made even before the pandemic began, based on predictions published in January 2020 by both the Congressional Budget Office and the International Monetary Fund . . . .

This is not true for other countries. In most of the world, economies are still doing worse today than pre-pandemic forecasts estimated. . . .

This all raises two questions. First, why are the numbers so much stronger than professional forecasters had expected? And second, why don’t Americans seem to believe them?

No one knows the answer to either of these questions for sure. But the ambivalent consumer appears to be key to both.

If getting legislation through Congress and past judicial review isn’t hard enough—there’s the messaging challenge. The mainstream media’s “false equivalence” habit muddies up policy communication by juxtaposing Biden’s economic proposals with nonsensical objections from “the other side.” The New York Times and the Washington Post coverage left me uninformed. I finally understood that the administration had a coherent economic policy from reading (what I call) “My Daily Heather”—a/k/a “Letters from an American,” by historian Heather Cox Richardson.

Here’s her take on our current economic struggles and how we got here:

Heather Cox Richardson, 10/26/23

Today, data from the Commerce Department showed that the U.S. economy grew at an astonishing rate of 4.9% in the third quarter, and we learned that in Lewiston, Maine, a single shooter killed at least 18 people . . . . 

These two things are the results of two dramatically different worldviews. 

President Joe Biden . . . and the administration’s economic advisors have resurrected the idea that the government can promote economic growth by regulating businesses, protecting workers, and investing in ordinary Americans.

That theory reaches back to the liberal consensus of the years from 1933 to 1981, when members of both parties believed that the intricacies of the modern economy required the federal government to keep the playing field level so that a few people could not monopolize resources and power, cutting others out. In those years, Americans used the government to regulate business, provide a basic social safety net, promote infrastructure, and protect civil rights. The system created what economists call the “great compression.” Wealth and income distribution became much more even, and economic inequality fell dramatically. The economy boomed.

The modern-day Republican Party grew out of a rejection of that idea. . . . [Republicans] insisted that such government action was a form of socialism that stopped the economy from responding efficiently to market forces. . . . Putting money at the “supply side” rather than the “demand side” would allow everyone to prosper together, they promised: a rising tide would lift all boats. They vowed to cut taxes and regulations and to restore American individualism. . . .

[Supporting the ideology of “rugged individualism,”] a faction in the NRA forced the organization away from sports and toward opposing “gun control.” The NRA formed a political action committee (PAC) in 1975, and in 1980, for the first time, it endorsed a presidential candidate: Republican Ronald Reagan. When Reagan was elected, the NRA became a player in national politics . . . .

But now, as the nation reels from another mass shooting, there is yet more proof that Republican economic individualism from which the gun obsession developed doesn’t work as well as the idea of using the government to support the American people. . . .

Despite the dire warnings that the economic policies of the Biden administration would cause a terrible recession, Biden and Harris rejected supply-side policies and stood firm on the traditional idea that trying to hold the economic playing field level and investing in workers and infrastructure would nurture the economy. The economy has responded exactly as they predicted, giving the U.S. strong growth for the past five quarters. 

That Biden’s economic approach is guiding the United States towards a post-Covid “soft landing” has not gone unnoticed in the business press. The current administration’s effort to rebalance the economic playing field is getting good reviews from unexpected quarters.

Foroohar in the Financial Times:

The end of cheap is a huge shift. It means Main Street rather than Wall Street will drive the economy. It will make for a more balanced and resilient economy. The bond market won’t like it, and there will be calls to return to the old ways . . . .

But the past few years have taught us all that cheap isn’t really cheap. It’s just putting your troubles on layaway.

And now . . . your moment of kindness

Writing—and reading—about serious subjects can be fairly depressing. That’s why I’m introducing a new feature at the end of each essay. Here’s a story of kindness. . . .

Firefighters make kids breakfast after mother is rushed to hospital. (Links to an unlocked article in the Washington Post.)

‘It really does take a village. We all have to look out for one another,’ said firefighter Brian Thompson.

Related Grounded articles:

Polycrisis and the Necessity of Art (October 24, 2023)

Why is Life So Hard Here? (August 29, 2023)

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Notes:

Heather Cox Richardson, Letters from an American, October 26, 2023.

Rana Foroohar, The era of cheap is over.

Catherine Rampell, Why prices are never going back down.

Catherine Rampell, When will Americans learn to stop worrying and learn to love the economy?

Anshu Siripurapu and Noah Berman (Council on Foreign Relations), The contentious US-China trade relationship

Emily Stewart, The awful American consumer.