Hot Pepper Economics

What do we do when prices go up?

Source: Wikimedia. CC-BY-2.0

We usually switch what we buy, if we can. If the price of cayenne pepper doubles, we try substituting chili powder. If Ford tries to jack up the price of its Expedition, sales of Chevy Suburbans go up. Substitution is what keeps our finances stable even when the prices of various household items double or fall in half.

It’s also why the explosive growth of big box retailers in the ‘90s or online retailers now has generally caused the economy to be stronger. These developments led to massive changes in retail employment and steady decline in the share of workers engaged in retail trade. This is a big deal: over 15 million people work in retail shops.

Source: St. Louis Fed

But as fewer people have taken retail sales jobs, more folks have taken jobs in healthcare, technology, and even management. Those jobs require different and generally higher skills than being a check-out clerk or stocking shelves. Greater productivity across the economy leads to higher incomes and a stronger economy.

But this couldn’t happen if small retailers lobbied to stop Walmart in the ‘90s or if Walmart uses government now to stop the growth of Amazon. Falling retail employment now is a little like falling farm employment early in the 20th century. One acre of land now produces far, far more cotton or soybeans or wheat with only a fraction of the labor than it did 100, 50, or even 20 years ago. That’s because we’ve substituted capital for labor, and the US has many natural advantages when it comes to trading agricultural goods: temperate weather, navigable rivers, stable and rational land-use regulations.

Photo: Ed Schipul. Source: Wikipedia

So don’t panic when you see “clickbait” stories on the retail apocalypse or how robots like self-driving cars and trucks will destroy everyone’s jobs. These things don’t happen overnight, and we’re not in some futuristic film with everyone wearing antiseptic white. It may not make a good movie line, but it’s true nonetheless: it’s not what doesn’t kill us, but what we freely choose, that makes us stronger.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-03-14T06:14:03-04:00March 14th, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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