Scott,Does today's CPI report indicate that deflation is still a problem? I'm a lawyer in a big firm and we're certainly seeing pressure to reduce our rates and it seems everyone is being forced to reduce prices. Does this suggest recovery is a long way off?
The longer people go unemployed and the government artificially props up the markets, the worse off this situation is going to get.If a lax Fed and willing China helped to incorrectly allocate capital during the boom years, it would seem plausible that the current Congress allocating capital to clunkers et al creates the same problem but in different areas of the economy…
My point exactly...http://www.calculatedriskblog.com/2009/08/first-time-home-buyer-frenzy.htmlThe Government is already creating a housing frenzy in one demographic of the population. These are the same type of buyers most susceptible to an adverse economic household event.Regardless, the Government cannot sustain it forever.If you thought Government intervention/regulation facilitated some of the housing bubble/bust in the first place, we may already be in the 3rd inning of the next boom/bust.
Bill: the short answer is no. I haven't had time to write a post on the CPI report, but will try to do so tomorrow. I don't see deflationary pressures, even though some firms are obviously under pressure to cut their prices. Cutting prices to remain competitive is not the same as deflation, which is a decline in all prices. Deflation is caused by a shortage of money, and I see no signs of that occurring.
In the tech sector, we've had "deflation" for years. Just about any type of electronic item is less expensive now than 10 years ago. Is this deflation or just competition, efficient production and/or R/D costs paid by "early adopters" allowing for lower prices now?Bill, if you're seeing pressure to reduce rates, possibly supply/demand is finally coming into play. Not good for you, but frankly, as a business owner, it's good to see pressure on legal fees. They've gone up, up, up for way too long.Likewise, it's much cheaper to build a house now than three years ago. After just about doubling in a three year period in our community, labor prices to build a house have collapsed. Is this deflation or just a return to the long-term trend with a possible overcorrection?Are we seeing deflation as a long-term trend or just softening of the inflation many industries experienced during the boom years?Scott, thanks again for taking your time to share your thoughts.
Cabodog,I agree legal fees have been too high. I just hope we can continue to reduce our insane overhead so I can reduce my rates even further to attract more clients. However, after 23 years in a big law firm, I can see moving to a small shop as the answer if I can't reduce my rates.
Frankly, as a small business owner, I'd much prefer doing business with a "small shop" attorney at reasonable rates rather than a glitzy downtown law firm. I'd even do business with an attorney working from home.Walking into the big downtown law firm, I question how much of my money goes for legal work and how much is paying for the high overhead.I'm currently working with a big-city law firm for some trademark work and the bill is running about twice what we budgeted for. Never again.
It's stuff like this that will make the economy more efficient and stronger in the end. This is not deflation, it's creative destruction, and that's positive for the economy in general even though it's very painful for some.
Public: it's hard to know how much of the buying frenzy (such as there may be) is due to the first time buyer's tax credit, and how much is due to lower prices and relatively low mortgage rates. I would caution that upturns in activity rarely bring with them the seeds of their own destruction. This could simply be a recovery, aided in part by government policies.
Post a Comment