One of the key features of the last two and a half years has been rising prices across the globe. It started with the price of financial assets like stock markets and crypto as investors were pushed out the risk curve by the central banks around the world keeping interest rates artificially low since at least 2007.

Whilst there has been a considerable correction in asset prices in the last few months, it is now the turn of consumer goods prices to increase significantly. Rare is the country where (official!) consumer prices have increased by less than 7% over the last 12 months.

In some cases, this is considerably worse. To look at only one specific example, my utility bills have gone up 70% from March to April 2022 and are likely to remain at that level for the foreseeable future.

The general trend is quite clearly upwards.

Now, depending on your philosophical leanings this was either due to the greed of corporations around the world, a democratically elected President of a former communist country rich in commodities, or the result of complete and utter mismanagement of the world’s economies by elected politicians and unelected technocrats alike.

The question as to how to deal with this is also a matter of your philosophical leanings.

Celebrating The English Summer

First though, let me use this opportunity to incorporate my other passion into an economics/finance article.

Tennis.

I’ve been playing competitively for over 40 years and although my body does not always appreciate the punishment it gets (I know how it feels @jimmyadames, and you are younger! 😊), I feel incomplete when not playing.

Wimbledon is my favourite tennis tournament.

It is played on grass, which just happens to be my favourite surface to play on. Closely followed by red clay.

I fondly remember the times we played university matches on grass courts. If I recall correctly, it was Imperial College London that had the best grass courts. At least back in the mid-to-late 1980s…..

One of the key features of Wimbledon is a typical English summer dessert.

Strawberries and cream.

Given the popularity of Wimbledon and the fact that the price I pay for strawberries in the supermarket is definitely higher than it was last year, I thought I’d check whether Wimbledon is bucking the inflation trend or following it.

(For authenticity, I took this photo from the official website of The Championships Wimbledon, https://www.wimbledon.com/en_GB/foodanddrink/index.html)

According to the official website, Wimbledon sells an average of 190,090 portions of strawberries and cream during the two weeks the tournament runs.

To my surprise, Wimbledon has kept the price of its most popular dish of 10 strawberries served with cream (normal or with a non-dairy alternative) unchanged at GBP2.50 (USD3 at the time of writing) since 2010!

Wow! Price stability of a popular dish such as this over a period of 12 years is quite an achievement!

Another proof of our ability to find work arounds if left to our own devices.

Ticket prices on the other hand have gone up by at least 7% across the board from last year.

Total prize money has increased by slightly more than 15% compared to 2021, increasing from GBP35m to GBP40.35m. And that is definitely well in excess of official UK inflation which at last count came in at an annual 9.1% in May 2022.

How To Deal With Inflation?

This one is difficult. And misunderstood by many. Even amongst “expert” economists. Or rather especially amongst “expert” economists.

One thing to keep in mind is that all bouts of inflation over the centuries and millennia of human economic activity have one root cause in common.

Excess money printing by the authorities.

In 1976 Milton Friedman was awarded the Nobel Memorial Prize for Economics for his research on this topic.

If you want to reduce inflation, the first logical thing to do is therefore to stop printing more money!

Another popular approach amongst politicians and technocrats especially, one that has been tried and tested many times over the centuries, is to introduce price controls. This has failed as often as it has been tried.

Another, less popular approach, would be to let the market deal with it in its own time.

How To Deal With Current Inflation?

Any intervention by the powers that be (aka central planners, regulators etc) will ALWAYS result in severely sub-optimal outcomes. The resulting misallocation of resources is the quick path to the poorhouse.

Think the energy crisis developing in Europe, primarily Germany. Think the food crisis developing around Europe on the back of government mandated reduction of food production by the Dutch government. Soon to be followed by the same insanity in Canada. And Germany.

It is vital to keep in mind that free market capitalism is the best system we have to raise the living standards of the poor and middle class.

Emphasis here is on “free market”. Unfortunately, this is not our current reality. Government intervention around the world is preventing this.

So, how do you solve our current price inflation I hear you ask?

By producing more stuff! And how do you achieve that? Not by dictating prices. Not by dictating volumes. But by letting the market decide how to allocate resources.

To put it in a sound bite: the solution for higher prices is higher prices!

The creativity and wisdom of the market will find a solution. No government intervention of any sort required. Or wanted!

Money flows where it is treated best!

Contrast: Currently Offered Solutions

In contrast, what are the solutions currently offered by our ruling politicians and technocrats?

Print more money.

Restrict the supply of goods and services even further by making it harder (or even impossible!) for the producers to make stuff!

Which is the exact opposite of what we really need. Which is less money and more stuff.

This is probably why many of us are in crypto.

We either know something is wrong with our existing system and are looking for alternatives.

Or we have a gut feel that the system is not working and focus on the alternative.

Crypto.

How About Central Bank Digital Currencies?

Central bank digital currencies (CBDCs) are an extension of the present bad system of central planning.

In the present system, commercial banks create money by lending it out for commercial, productive reasons. Banks are looking to be paid back whilst turning a profit.

This means that the money created goes into more goods and services. This does not cause inflation in and of itself. It is more likely to be deflationary.

Real capitalism is more likely to bring prices down. Think competition. Which raises the standard of living for the poor and middle classes.

If we move into CBDCs then the central bank is in charge of that system. It is centrally planned and coordinated. And central banks are NOT profit and loss orientated.

Central banks are a government owned bureaucracy. Central banks are more likely to lend based on politics and social behaviour than commercially orientated institutions.

Centrally controlled money creation is Marxism at its best! In addition to being Orwellian “BIG Brother” watching you.

History may not repeat itself exactly. But it does rhyme.

As the saying goes, one thing history teaches you is that we do not learn from history!

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