The law of supply and demand is largely inexorable - and non-linear!
Recent article(s) online laments that millenials are killing concert events. Just kidding, of course, but it seems that people are indeed turning away from entertainment and other luxury purchases as prices go up and the economy - going strong for the moment - shows signs of fragility.
When you get laid off from your job and are spending months looking for a new one, your behavior changes. Not a lot at first - most people simply live as before and rack up credit card debt. But then "suddenly" they wake up one day and realize they have more debt than they are comfortable with - and are struggling to make the minimum payments every month. "Suddenly" it seems, spending $100 on concert tickets (or far more!) seems like an unnecessary expense. "Suddenly" buying coffee for $5 a cup seems wasteful. "Suddenly" it seems that $12 for a fast-food meal is a rotten bargain.
I know this two ways. First of all, I have experienced this more than once in my lifetime. You spend more money than you make and it all seems swell and all, until "Suddenly" you wake up and realize you were financing restaurant meals at astronomical credit card interest rates. Everyone, it seems, goes through a personal credit card crises at least once in their life.
Second, I have witnessed these recessions or whatever you want to call them, more than once my life. Economies grow organically, it seems, and then they overshoot and collapse "suddenly." No doubt a chaos theory mathematician could draw you a diagram. Back in 2005 we sold out of most of our real estate porffolio, convinced the end was nigh. It kept going for another three years to absurd levels. Banks kept offering weirder and weirder mortgages - "Payment Optional" they called it - and eventually and "Suddenly" the bills came due, particularly when interest rates went up.
I suspect we are in another one of these overshoots - where housing prices in some markets are so extreme that it is cheaper to rent than it is to buy. In some markets, even rent is not affordable - although it always seems that way when you are in your 20's. I know it did for me!
I illustrated long go how housing prices can swing wildly based on small changes in the balance between supply and demand. If you have 100 people looking to buy a house in Anytown, USA and only 99 houses on the market, well, a bidding war will start. Since the difference in monthly payment on a 30-year mortgage isn't that great, one buyer will pay more - a lot more - to win the house. A delta of 1% in the balance of supply versus demand can result in a 5-10% change in prices.
Eventually, if prices go high enough, maybe it might encourage someone to put their home on the market. But since few homeowners want to be homeless or go back to renting, you have to really jack prices to convince unmotivated buyers to sell. For example, our house in Alexandria was worth maybe $400,000 on a good day and even that was an inflated price. We weren't interested in selling, but when they offered $700,000 for the house (the lots, actually) it was SOLD! overnight.
If the situation is reversed and there are more sellers than buyers the same thing happens. If there are 99 buyers and 100 homes, one homeowner (the most desperate to sell) will easily drop his price by 5-10% to get it sold. Again, a 1% difference between supply versus demand, a 5-10% delta in pricing.
With concert tickets, the same is true and the supply has been saturated recently as more and more artists are realizing that their Spotify royalties aren't going to pay the mortgage. Touring has historically been the moneymaker for performers as record company deals yield only trivial rewards. The Greatful Dead famously allowed its fans to record their concerts - even allowing fans to plug their portable Nakamichi tape decks into the mixing board for a clean copy.
They made so little money from record sales. The money was in touring. And tour they did.
Coming off the pandemic, there was a lot of pent-up demand for live music and initially, prices soared. But like anything else, what goes up must come down. And as demand was satiated and another generation develops tinnitus as a result, demand has dropped off. As a result, some lesser (and not-so-lesser) artists are cancelling tours or shows or limiting tours. Prices have dropped - a small amount on average, but a larger amount if you consider how inflation and wage inflation has increased concert production costs.
Adam Smith would be pleased.
There are signs, too, that people are rejecting the idea of the $5 breakfast sandwich. Well, they are bitching about it a lot, but not changing their behavior. For many, eating fast-food is such an ingrained habit that they struggle to realize there are alternatives - sometimes even at the fast-food restaurant!
But I suspect we will see the same thing that happened in the past, happen again. And McDonald's will trot out its "dollar menu" (or maybe this time, two-dollar menu) just as they did in 2008. In fact, most fast-food places are offering such deals, although mostly to encourage you to add fries and a coke to that - bringing the total back up over ten bucks.
In the grocery store, the same thing is going on. Our Canadian friends are really feeling the pinch here. There are signs that folks are ditching brand-names and embracing store brands. I know that when I was a young hot-shot lawyer I used to pride myself on not checking prices and buying brand names. In 2008 I ditched that foolishness and discovered that my prejudices about Walmart were unfounded. Today, when I go to Publix or Harris Teeter, I marvel that people are willing to pay double what Walmart is charging across the street.
Prices will keep going up - or remain high - so long as people keep buying. When you complain about high prices but then keep on buying at that high price, then you have made a rational bargain according to Adam Smith. You could argue that the retailer is raking in record profits and the CEO is making too much money, but if you paid, you merely validated their pricing scheme. The fact you are unhappy but still paid only means they extracted the highest price possible. It is basic economics.
Of course, some argue that things like food and shelter are necessities and there are no substitutes. But indeed there are. As the most obese nation on the planet, eating less food is always an option and a healthy one as well. Relying less on restaurants is also one way to cut your food budget in half - or more. And while having a roommate or living with your parents may suck, it is something that people will resort to, if they are really that hard-pressed.
On the other hand, the idea that someone making minimum wage and living alone is "entitled" to a two-bedroom apartment at an "affordable" price (or even free!) as some leftists argue, is just insane. This idea of rent control or socialized housing has been tried, worldwide, in the past and today and it largely doesn't work out well. Housing will always take up the lion's share of anyone's personal budget. I know it does for me, and my house is even paid-for. Yes, it can easily cost $15,000 to $20,000 a year to live in a home even without a mortgage. Ask your Grandma in Florida about her property taxes!
This, too, shall pass, they say. And again, I have experienced this more than once in my life - and far, far worse than today. Few today remember the gas shock of 1979 when you could only buy gasoline on alternate days - if at all! Or the double-digit inflation or 14% mortgage rates. Our house in Alexandria had a mortgage over 11%! Today, I have credit cards with lower rates than that.
We survived the 70s and 80s. We'll survive this, too. Step one is to stop bitching about high prices and stop paying them, instead.
