April 14, 2022

Is The US A "Captured" Market? An Alternative Explanation For Inflation.

To anyone familiar with American Politics, something is happening right now which is very strange. America is facing the greatest economic crisis in a generation.

Yet our political class in Washington has not uttered a single word. Oh, the President calls out Vladimir Putin as a “bad guy.” Yet no one believes that Putin is the cause of our current bout of inflation.

The Federal Reserve seems absolutely paralyzed. Unable to raise rates, without having scores of speeches, meetings, and projections. But to date, no real hike in rates.

And Janet Yellen, our secretary of the Treasury, and the point person for the Administration's economic efforts. But Yellen too is mute.

Is it possible that they are all silent because they realize that controlling inflation is now out of their hands?

Incidentally, I reject the notion that these people are just stupid. That they don't understand our current situation. There are over 2 million bureaucrats who work in the Federal Government. Many with advanced degrees in finance and economics. Some of them know exactly what's happening.

I conclude that Washington is not stupid, just powerless.

That the answer to our economic problems lies not in this country, but overseas.

And that's the reason for our current unstoppable rise in prices. We are living in an economy, where many of our markets have been captured. Over a very long period of time, we've lost control of the most basic part of our economy.

Now a captured market, the textbooks tell us, is a market where we have few if any alternatives. Classic examples are food kiosks at the airport, train station, or ballpark.

If you want a hot dog, you don't have many choices. And in the worst case, you may not have any choice at all. Either purchase your hot dog from the in-house vendor. Or don't eat.

It's that simple.

And as for that hot dog vendor, he can charge whatever he thinks you'll put up with. The sky is literally the limit. Pay his price, or take a hike.

So how would an entire economy look if it too were captured?

Well, for one thing, there would be very limited alternatives to the goods made elsewhere. For instance, try to purchase an electronics item made in the USA. Televisions to smartphones, it's almost impossible to find “made in the USA.” That label used to be commonplace in this country. But has now all but disappeared.

Appliances, household goods, clothing, retail items of all types the list goes on and on. You all know the drill. And none of us are happy about it. But it's much more than simply a desire to buy American.

We've now come full circle. Gone is the time when US demand sets an item's price. We're well beyond our own market providing the price of goods.

Today, someone else. Someone far away sets the price and availability of many of the goods we purchase.

Don't think this is significant? Remember that Goods Balance of Trade, I keep talking about?

In 2021, the United States imported $1 trillion dollars in foreign-made goods. Goods that we either will not or cannot make ourselves. Goods that are no longer produced to meet this country's demand. Goods whose supply and the price are set off-shore.

And in a nutshell, that is why we have this inflation.

Oh, you can think of a hundred reasons that countries are charging the prices they are. Some of those reasons may be justified, some not.

But the point is that they, the large group of foreign suppliers. They are setting the price. Not us.

And that's the very definition of a captured marketplace.

One that we're living in now.

It's also, incidentally, the reason that American Politicians are mute. They have nothing to say because there is nothing they can do.