Imagine running a rink company at the end of the roller skating craze. You know it is not going to survive for long. How do you operate your business? You milk it. Well, that’s now happening across the entire economy.
I wrote a story about poor Clarence who retired in 1979, and even poorer Larry who retired last year. I created these characters to challenge the notion of calculating a real interest rate by subtracting inflation. The idea is that the decline of a currency can be measured by the rate of price increases. This price-centric view leads to the concept of purchasing power—the amount of stuff that a dollar can buy. It’s the flip side of prices. When prices rise, purchasing power falls.
How do people’s ideas on morality affect their economics?
If roads were private the owners would have an incentive to provide capacity, safety, and invent a pricing mechanism that would enable traffic to flow freely.
Artifically low prices resulting from government decree causes an artificial shortage which results in long lines, empty stations, and lack of incentives for more supplies.