The American public appears to be concerned about the allegedly high prices and the allegedly high rate of inflation. This is because the American public believes or just "knows" that the prices are high and are going through the roof.
For instance, a customer in front of me at the supermarket check out counter was paying $93. They said that this would have cost only $50 last year.
The purpose of this article is to dispel such unwarranted fears.
I will call upon Friedrich von Hayek, the 1974 Nobel Laureate in Economic Sciences and Milton Friedman, another American Nobel Laureate in Economics and a statistician. I will do this so nobody has to rely only on my word, even though I have almost 60 years of experience in operations research, mathematical statistics and economics with requisite education.
Moreover, the competition pushes the prices to the absolute minimum at which the producers and the retailers can still earn a suitable profit that makes it possible for them to stay in business.
Anybody who does not follow this simple dictum of the market cannot stay in business for too long. Thus, it is not true at all, as some charged during the recent bird flu epidemic when the prices of eggs went through the roof, that producers can raise the prices arbitrarily at will.
As the prices are pushed down by the competition, so they can cover the costs and make a reasonable profit, it is a fool's errand to propose any kind of price control with no regard to costs.
Only those entirely devoid of any knowledge of economics can propose such a decadent measure—that would, in short order, destroy the American markets and create shortages of price-controlled items.
We have heard such misguided proposals from the presidential candidate Kamala Harris. But she was not the only one. Our own Republican representative in Congress proposed exactly one year ago, with his Democratic counterpart from the adjacent county, a "bipartisan measure to compel the Department of Treasury to study how to reduce the prices of groceries." (He lost the last election to a Democrat, though he thought he was doing what the public wanted.)
The fact that the public, with no knowledge of economics, demanded such an action is not a sufficient reason for damaging and destroying the American markets.
There has been past experience with the decadent attempts to control prices. The results show how wrong such attempts at controlling prices are:
(a) When President Nixon introduced a three-month moratorium on prices and wage increases in August 1971, meat started disappearing from supermarkets and farmers were drowning their chickens instead of selling them later at a loss. But the public as well as politicians may have short memories.
(b) In communist Czechoslovakia, where I lived for 30 years before coming here (I have been here for 50 years), the government completely controlled prices. As a result, we experienced periodic shortages of most common items, such as meat, matches or toilet paper.
Ludwig von Mises, von Hayek's compatriot, postulated as far back as the 1920s that such a command economy cannot work properly. The simple reason is that the price of one market participant is the cost for the other. Soon nobody knows what the true costs of production are and as a result, the economic system starts breaking down with dislocations and shortages.
Von Mises determined this theoretically. But we experienced this in real life in communist Czechoslovakia. This became one of the reasons for the demise of communism in Eastern Europe in 1989.
(c) The command economy with central planning, and along with price controls is the basic tenet of socialism. Socialists dream about central control of the economy and prices because they believe, without any evidence, that central control is more "efficient."
In addition, von Hayek shows in his 1943 worldwide bestseller "The Road to Serfdom" how socialism, in its never-ending striving for more control of society and its citizens, must abridge the personal liberties of its subjects. If necessary, socialism will do it by terror. (Lenin, “Collected Works,” Russian edition, page 156: "Terror must remain an important part of the socialist revolution.")
This is the main failure of Marxism and the decadent theory of "Scientific Socialism," which was drilled into us at university. Marxism and "scientific socialism" disregard the basic human desire for self-improvement. They postulate that communism is the highest stage of socialism, and the communist utopia that states "everybody would work according to his abilities but would be rewarded according to his needs."
Inflation is NOT caused by producers and retailers simply raising prices at will. Monetarists, led by Nobel laureate Milton Friedman, tell us that inflation is caused by an increase in the money supply. Namely, if the increase in the money supply—the money in circulation—is greater than the increase in production as measured by the Gross Domestic Product plus the increase in productivity, more money serves the same amount of production. The value of the money has to decline to get into a new equilibrium with the production—hence inflation.
The classical liberal economists (the term 'liberal" has been hijacked by the left, whereas historically the meaning has been very different), the disciples of von Hayek and von Mises add usefully to the definition of inflation. They also examine the up and down effect on prices by supply and demand.
Inflation is somewhat muted or increased by the Quantity Theory of Money—namely how many times a dollar turns over in the national economy.
Unhappily, during President Biden's administration and following the epidemic, the American money supply has increased by an astronomical 40% from $15 trillion to $21 trillion in only two years.
This was the result of the administration's profligate spending that was financed both by borrowing money—selling government securities to investors—and by outright printing the money and putting the government IOUs into the Fed's "assets." The government then used the cash thus received for its current expenses. In this way, the additional $6 trillion was put into circulation.
We note that the Fed's assets, which were merely $800 billion in 2008, reached a high of $8.9 trillion in 2022 and stand at $6.7 trillion today. The Fed reduced its assets by selling government securities from its asset portfolio to outside investors and by destroying the cash received from these sales.
I have always said that Americans should relax, smell the roses, fire the therapists and enjoy their good fortune of living in the richest country in the world, with a standard of living for the common man never seen before on Earth.
Instead, Americans are anxious and depressed and the American therapists say they are fully booked for the foreseeable future.
Without sounding heartless, I want to say that nobody today has to be homeless. The problems, apart from the occasional cases of bad judgement, are drugs, alcohol and mental problems. Yet all these people have welfare and free medical care under Medicaid.
The problem is that these people are in fact unemployable. And if you hire such a person, he or she does not come to work the second or third day, and that is the end of it.
Whenever I give some money to an able-bodied man panhandling at a red light in front of a Home Depot store, I tell them that employers are hiring everywhere. Invariably, the answer is "I have my application in." He knows and I know he is kidding. He is unemployable.
As of today, we have 7.3 million job openings begging for people. The minimum wage in Sullivan County, NY, where I live, is $15.50 an hour. In NYC and surrounding counties, the minimum wage is $16.50 an hour.
Starting this past January, the Bank of America is paying its tellers a minimum wage of $25 an hour. This comes to $52,000 a year for a 40-hour week. Many other employers are voluntarily paying more than the minimum wage. The Home Depot in Monticello, NY, is paying a minimum wage of $17.50 an hour, which is $36,400 a year for a 40-hour week.
But we know homelessness is a problem. The problem is perhaps unsolvable at this time.
Some of us may still remember the case of homeless Billy Bog, when Ed Koch was the mayor of NYC. She was sleeping on the exhaust of HVAC on the street. The mayor ordered the police to take her to a homeless shelter. That rose the ire of "homeless advocates." They bought her clothes at Bloomingdale's and toured Ivy League schools with her, where she spoke eloquently about the plight of the homeless. But after the "homeless advocates" lost interest in her, she ended up sleeping on the HVAC exhaust on the New York City street again.
So Americans are anxious and depressed because they believe prices and inflation are very high and rising. Some even believe that this country is going to hell. (This opinion has become so widespread that 53% of Hungarians, according to the Hungarian media, believe based on what they hear from America that our economy is on the ropes and will collapse soon.)
Let me say unequivocally that none of this is necessary. Neither is it justified by economic data for the past five years, 20 years or 50 years.
There are two sources of misleading information that is creating this false impression in the minds of the public:
(1) Various pundits, "experts" and TV talking heads who keep the public at the edge of their seat by spewing doom and gloom for one reason only: To maintain their viewership, because the advertising revenue depends on the number of viewers.
Example: The Bloomberg News economic model forecast a recession in the United States for November 2022 with a probability of 100%. The recession never happened. People like this, who spew doom and gloom, know that even a broken clock is right two times a day. They will be right some day if they keep at it long enough, be it in five years or in 20 years, as our capitalist economy of free enterprise is by definition cyclical and may overheat and slow down. Yet, the available economic data point neither to a recession nor to high prices and inflation.
A bigger problem is the fact that this prediction by Bloomberg News was scientifically faulty, because there cannot be any economic forecasting with a probability of 100%. This is due to the fact that any mathematical model relying on a distribution of probability of any such event has both tails going to infinity. Thus, all we can do when it comes to such a forecast is to predict an event only with a probability lower than 100%—for instance 95%—with any degree of accuracy.
(2) Various politicians who spew doom and gloom for a different purpose. They use apocalyptic economic predictions to criticize their opponents and their policies as part of the election process. They also criticize their opponents when their opponents have been elected to office. Thus, the doom and gloom is a tool of political fighting.
Example: "Vote for me. If I am not elected, it will result in an economic disaster."
Another example: I receive one or two times a week emails with texts such as "Economic Crisis" and "Is U.S. on the Verge of an Economic Catastrophe?"
The following is just a repeat of what I have said many times before.
First, most products, including food, are cheaper today than they were 50 years ago in 1975, adjusted for inflation.
If this is a great surprise, here is the readily available supporting data:
The inflation over the last 50 years from 1975 through 2025 has been 497%.
(Admittedly, this scares a lot of people.)
This means that $1 in 1975 is now worth $5.97 (not $4.97).
The average price of meat in 1975 was $1.80 a pound. That translates into $10.75 today.
But we buy today:
Beautiful pork cutlets for $0.99 to $3.50 a pound
Angus steak for $6.50 to $9.50 a pound
$2 for a pound of strawberries
$1.99 for 5 ounces of raspberries
$0.75 per avocado
I used to buy a gallon of gas for 59 cents at the Texaco station in NYC.
That would be $3.52 today adjusted for inflation. We pay this much or less per gallon of gas today.
So overall, the data shows that most things are cheaper today, when adjusted for inflation, than 50 years ago in 1975.
Except for housing—that has increased significantly over the last 50 years.
Part of that, of course, is the fact that the average new house in 1975 was just 1,700 sq. ft., whereas it is 2,500 sq. ft. today. The other reason for high prices of housing is that the demand outstrips the supply and the consumers do have the money to pay these high prices.
Second, people say: "Maybe you are right about the last 50 years. But how about the last five years? We are scared!"
So here is the data for the past five years:
Cumulative inflation over the last five years has been 23.3% through the epidemic. [Cumulative inflation simply means inflation that ocurred over the indicated number of years.]
This comes to 4.28% per year on the average (1.0428 raised to the fifth power equals 1.233).
This also means that $1 in 2020 is worth 1.23 today.
But the median household income, which has been rising slightly above the rate of inflation for decades, has also increased. From $68,000 in 2020 to $82,400 in 2025, namely by 21.2%.
The increase in the median household income of 21.2% very slightly lags behind the rate of inflation of 23.3% over the last five years. This very fact is NON-INFLATIONARY.
[That the increase in incomes is NON-INFLATIONARY simply means that the increase in incomes is not driving the inflation up. Conversely, a considerable and sustained increase in incomes above the rate of inflation causes the inflation to go up. As consumers have much more money, they buy more thereby increasing the demand that in turn drives the prices up. This is how South American countries have been destroying their national economies for the past 150 years. They simply increase the salaries by a government decree by a percentage exceeding the rate of inflation, which in turn drives inflation even higher. To wit: The current annual inflation rate in Venezuela is 156%, in Argentina 56% and it was 3,000% in Brazil in 1990.]
Third, a note on interest rates:
The prevailing public opinion is that the interest rates are "high."
I agree with President Trump that the Fed should lower its Federal Funds Rate, currently standing at 4.5%.
The main reason is that the current rate of inflation is merely 2.4%.
The "headline" inflation rate in the Euro area has dropped to 1.9%. The European Central Bank has lowered the three key interest rates to between 2.00% and 2.40%.
However, the current perception of the public that the interest rates are high is another misconception:
The main reason is that we have just come out of a decade with historically low rates of interest. Such low rates of interest may not be repeated any time soon.
Consumers are dreaming about the 30-year mortgage rates of 1% and think, wrongly, that the current rate of 6.75% is "high." Those rates of interest of 1%, which were available for a while in the recent past, were an aberration.
The reason is that in the long term, nobody can lend us mortgage money for 30 years at a rate of 1%. The consumers were not the only ones deceived by this aberration.
Even the executives of the Valley Bank made the same mistake, believing that the mortgage rates of 1% were here to stay. They heavily marketed 1% mortgage loans to affluent borrowers with large mortgage loan amounts. And this is why the Valley Bank went under: As the interest rates started rising, the Valley Bank had to pay the depositors and the investors more than what they were earning on their 1% mortgage loans and the bank went under.
From the historical point of view, the Federal Funds Rate that stands today at 4.5% reached an effective high of 23.36% in 1981 while the rate of inflation at the end of Carter administration reached 14.8% in 1980.
For whatever it is worth, my 30-year mortgage loan interest rates were as follows: 7.8% in 1978, 12.5% in 1981, 10.5% in 1987 and currently 5.75%. Needless to say, each of these houses appreciated at least 100% before we sold it.
Fourth, a note on President Trump's economic measures:
We had to endure writings by pundits and "experts" to the effect that President Trump was so unknowledgeable that he did not know that the tariffs he imposed on imports would be simply added to the price that is paid by American consumers. In addition, the pundits and experts were certain that the tariffs would cause high prices and high inflation.
But none of this has happened. The inflation dropped to 2.4% and the prices are therefore increasing at the inflation rate of 2.4%, same as for the decades before. The unsustainable negative trade balance, caused by the strength of the American economy, which we had with many countries, dropped by 55% from negative $138.3 billion to negative $61.6 billion.
Here’s another way to think about the trade balance: It is negative because it is the difference between exports and imports. And the U.S. imports more than it exports. The dollar amounts are $289.9 billion in exports and $351 billion in imports in April 2025. Thus, the trade deficit stands at $61.6 billion. This is the result of the strength of the American economy whereby American consumers have been buying imported goods left and right.
So what happened? The pundits and "experts" who forecast the doom and gloom are now saying that the reason is that Trump "paused" the tariffs. But that is not the case, because (1) the base tariff on imported products of 10% across the board remains in place, (2) other tariffs that are much higher, such as on steel, remain in place and (3) other higher tariffs are being litigated in courts.
(1) In economics, there is a concept of "price elasticity." It means that the new tariff may not be automatically added to the former price for reasons that go beyond the scope of this article.
(2) Economists were concerned about the unsustainable negative trade balance we have with other countries. Nobody has done anything about it. Trump set out to reduce it and it was reduced via tariffs by 55% already.
(3) For instance, BMWs were imported with a tariff of 2.5% and a retail sales tax of 8% or less. A Chevrolet, no luxury car by any means, faces in Germany tariff of 10% (22% in case of American pickups) plus VAT [sales tax] of 20%, which has to be paid before the car is admitted into the country. Thus, BMWs are cheaper in New York than in Munich, where they are made. It has been like that for decades. Nobody has done anything about it.
Trump set out to change it. What the previous trading regime meant was that it was favoring foreign manufacturers, foreign labor and foreign national economies at the expense of American manufacturers, American labor and the American national economy.
(4) Finally, Trump has issued executive orders and proposed laws, some of them already approved by the Congress of the United States, whereby the income from tariffs pays for lowering the income taxes paid by Americans—including the elimination of income tax on Social Security benefits, tips and overtime over 40 hours a week. The current brouhaha about the "big, beautiful tax bill" notwithstanding.
While the president's critics look for items to criticize—and they already put their foot in their mouth before as it should be clear above—there is hardly anything not to be liked in the above program. The president's bluster, exaggeration, boasting and the seeming inability to select advisors (Cohen, Bannon, Giuliani, Sidney Powell and now apparently Musk) aside.
(a) The cumulative inflation over the last 50 years since 1975 has been 497%. Thus, $1 in 1975 is worth $5.97 today.
(b) The average annual inflation over the last 50 years from 1975 through 2025 has been 3.28%.
(c) The price of most products (except for housing costs) is lower today than it was 50 years ago in 1975, adjusted for inflation.
(d) The median household income has been increasing slightly above the rate of inflation for decades.
(e) The current annual rate of inflation is 2.4%.
(f) The 2% inflation target selected by our Fed and emulated by central banks the world over is not the result of any scientific economic study. It has been pulled out of thin air. Thus, this target could have been either 1% or 3% just as well.
(g) We have a positive inflation target of 2%, only to protect us against the dreaded deflation, in which prices start dropping uncontrollably, the producers and the retailers cannot recover their costs, and a wave of bankruptcies ensues.
(h) The cumulative inflation for the past five years has been 23.3%.
(i) The average annual inflation over the last five years, from 2020 through 2025, has been 4.28%.
(j) The median household income has increased very slightly below the rate of inflation over the same period of five years, namely by 21.2%, which is NON-INFLATIONARY.
The price and inflation data for the past five years and for 50 years as shown above confirm that the public is needlessly concerned about the allegedly high prices and the allegedly high inflation.
The allegedly high prices and the allegedly high inflation are a misconception.
Similarly, the public is wrongly concerned about rising prices.
For instance, somebody wrote to me that since President Trump took office, the prices, as portrayed by the Consumer Price Index, went only up and up while Trump promised to lower the prices.
It turns out that such concern is misplaced as it is false: The last four monthly values of the Consumer Price Index from February 2025 through May 2025 were 0.5, 0.2, negative 0.1, and 0.2 for an average of 0.2, which is 2.4% annualized. (Annualized means the monthly figure times 12 months.)
I contend that the current inflation rate of 2.4% is desirable. It protects us against unwanted deflation. It is also lower than the average annual inflation rate of 3.28% over the last 50 years.
Most importantly, the economic data we show above confirms the good state of the American national economy. The American public, at variance with the prevailing mood today, has nothing to worry about.
Von Mises is an occasional column on economics, written by Ivan Orisek of Forestburgh, NY. It’ll look at money, the way money works in America, and show you the numbers behind the headlines.
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