The Economics of Hershey's Kisses

A simple economic lesson Biden, Peppermint Patty and the Squad need to learn.

I give credit where credit is due.

The Biden administration is at least partially right about inflation.

Inflation is caused when there is high demand for scarce resources, causing the price for whatever resources that are available to rise as buyers compete for them. In this case, the seller’s market is created by the buyers who are willing to pay higher prices to obtain those resources. Production costs also rise in response to scarcities and timing issues in the upstream supply chain – raw materials, subcontractor costs and wages go up.

But this is inflation that the market will eliminate when supply ramps up and begins to satisfy the demand.

The danger in this scenario is deflation, which happens when supply (created at a certain cost to catch up with demand) imbalances the equation in the other direction and prices go down rapidly, putting suppliers in a cash pinch because they either make no profit or lose money because they can’t recover the costs burned in production of the goods and services. It also puts a downward pressure on wages as well, which are virtually impossible to decrease once they are increased, so companies have little choice other than to reduce the total cost of their labor, which means layoffs and firings.

So, the Biden econ flacks get this part right.

But since they are shameless, lying partisans, they leave a huge chunk out.

Assume you have the first condition where supply can’t keep up with demand, something any reasonable person would expect after a national economy was choked into a near death experience, and then demand was further juiced by an incredibly loose monetary policy – maybe handing out cash for not working, printing pallets of money and pouring those funds into the economy left, right, top and bottom through massive government spending programs.

Wouldn’t you think that process might just INCREASE demand even more at time when the supply chain was already struggling to get off its knees?

Hmmmm.

Let’s look at a simple example that even a Democrat can understand.

Your kid loves Hershey’s Kisses. I mean, he would eat them for every meal if you let him.

Now assume you and your kid are in a candy store and you give your kid 5 bucks, with which he normally can buy a pound of Hershey’s Kisses. Now assume the store owner lets you know there is only a pound of Kisses left in the store and he probably won’t be getting more for a few weeks. Let’s say you give the kid 10 bucks, and he really, really wants the Kisses, wouldn’t you suppose your kid might just be willing to pay more than 5 bucks for the remaining inventory?

What happens if there is another kid who wants those same Kisses, and he has 20 bucks?

Suddenly, the effective price of Kisses in that store gets bid up from 5 dollars a pound to 20 dollars a pound in a matter of minutes.

Why would a store owner “gouge” a little kid like that? Does he just hate kids?

Biden’s PR flack, Peppermint Patty, says it is greed and it is unconscionable for people to do something like that.

Well, it isn’t.

It is financial reality.

Due to supply chain issues, the store owner knows he may not get another shipment of Kisses for a couple of weeks – but he also knows his electric, gas, water and rent bills will keep going. If he wants to stay in business, he must find ways to offset the opportunity cost of not selling more Kisses until he gets the next shipment.

Dude has bills to pay because he is also part of a supply chain, buying goods and services from other links in the chain.

In this scenario, you can see how a customer with 20, 30, 40 or 50 bucks to spend can accelerate this process, both in terms of price increases and the rapid depletion of inventory.

When there are no more Kisses to be had, the price is whatever it takes to get them.

It is like pouring gas on a fire.

That is what loose federal monetary policy does.

The Biden agenda and the economists from the AOC School of Economic Theory are trying to put out a fire by pouring gas on it. AOC and her ilk want more money sent to people to support them when the more money just exacerbates their situation. More money printed in an inflationary period means each dollar buys less, and that hurts people who have investments and savings – their money erodes in value every day, even as their assets are valued higher as prices rise.

History proves that to quell inflation, interest rates must rise, and the supply of money must be reduced.

But that hurts people addicted to free money, and addicting people to free money is a Democrat strategy. They buy votes and support with free money.

Once again, this is about power, not economics.

And time and time again, the Democrats have shown a willingness to reduce America to a smoking pile of rubble if they can rule over it.

This time is no different.