Don’t say I didn’t predict it. Unless my eyes completely deceive me, Amazon.com is raising prices. That is to say, it is narrowing discounts; however you choose to look at it, the sticker prices are higher than a month ago. I base this on a random cyberwalk I made through the world’s most user-friendly bookstore last Thursday. Surprised at the price (full retail) I was being asked to pay for a book I was pretty sure could have been had at Amazon for at least 10 percent off a month ago, I surrendered to curiosity and browsed the shelves. Yes, certain big bestsellers (Brokaw, Albom) are still 40 percent off, but Harry Potter No. 4 can be had for $20.76, $2.59 more than I would pay at Bookcourt, my marvelous neighborhood shop over on Court Street, and that doesn’t include the $3.50 for Amazon shipping. Twenty percent off is now the benchmark for Brokaw No. 2, Danielle Steel, James Patterson and other big hitters’ most recent books. Back around Memorial Day, those discounts would have averaged 30 percent.
What this will mean to Amazon’s bottom line or cash-flow survival, I can’t say. We could be talking very big numbers. My guess is that Wall Street has taken quiet notice, since the stock is nicely off its midsummer low (back to almost $45 from $30, a 50 percent pop).
This had to have been the business model all along: give away the store with cut prices and super service until the place is squeezed absolutely jam-packed full, then lock the door on the customers, so to speak, and raise the prices-counting on the likelihood that few will choose to break the windows and flee into the street, and that most will go along. Call it the “Herman Hickman Theory of Retailing,” after the late Yale football coach who told reporters he would produce an Eli team good enough to keep the alumni “sullen but not mutinous.”
Whatever this means for Amazon in particular, what it spells generally is I-N-F-L-A-T-I-O-N. As readers know, this column has for years been plumping for its own definition of what Alan Greenspan fears even more than the sight of his wife without makeup. Namely, that inflation means an increase in price without a commensurate increase in “output value.” The latter can equate with effort, or utility, or simply enjoyment. Harry Potter No. 4 presumably offers readers the same pleasure at $20.76 or $18.17, so the $2.59 bump is purely inflationary. Artie Gimlet’s SUV gets 13 m.p.g. whether he’s paying $1.97 at the pump or $1.35. The difference is inflation.
In other words, the economic bugbear is alive and well and out there among us. Not that you would know it from the numbers put out by the Propaganda Ministry (a.k.a. the Labor and Commerce departments), unless you have been keeping up with John Crudele in the Post, or with the devastating analyses of Clintonian “hedonic” price-adjusting that James Grant and his colleagues have been putting out. The Washington statistics-mongers have shown themselves to be perfect Stanislavskians: adepts without peer at the great Russian director’s insistence that his actors must be able to imagine that there’s no white bear over there in the corner. And all this time we thought the boys and girls in the Pennsylvania Avenue chanceries were boning up on Von Mises and Hayek.
It’s probably very Hegelian to assert that what’s going to cause the economic ungluing of an era that proudly calls itself the “Information Age” will be a gross misuse of information, but that’s the way I’m coming to see it. What goes around comes around, in other words, and just now what’s coming ’round the corner is OPEC, whose name properly should be (and, by future historians, very likely will be) the label attached to the unprecedented continuum of prosperity that this country has enjoyed since 1982.
OPEC, in my view, made it all possible-with considerable help at the time from economic war criminals like Paul Volcker, Henry Kissinger and Walter Wriston. I realize this isn’t the conventional wisdom, but let me take you through it one more time.
The OPEC price increases of 1973-79, which ended up increasing the price of a barrel of crude tenfold, were only part of the story. Equally important was the oil producers’ insistence that oil transactions be denominated in dollars. This we gladly acquiesced in. Since most nations didn’t have dollar-generating resources, they were required to borrow, which they did overseas, where dollar credits and debits could be created willy-nilly outside the oversight of the Federal Reserve. By the end of the 1970′s, I recall reading in the reliable Bank Credit Analyst , no one in or out of Washington had a clear idea, within $350 billion (which in those days was real money), how many dollars were out there.
The result was the dollarization of the world economy. More importantly, it is an axiom of exchange finance that currencies gravitate toward the flag printed on them. Ordinarily, a holder of Jamaican dollars would have had a Hobson’s Choice: a) invest them in Jamaica and take a possible future business risk, or b) convert them into U.S. dollars and take a financial hit now. The neat trick, which took Hobson out of play altogether, was to make the Jamaicans pay in U.S. dollars, and thus avoid the a) and b) scenarios altogether.
At which point, Dame Fortune stepped in and threw her arms around our shoulders, because unlike any other country, we could absorb not only the consequences of OPEC’s insistence on dollar payments, but our own subsequent balance-of-payments profligacy. The mirror image of a trade deficit is a currency surplus, and if everything else breaks a certain way, as it did for us thanks initially to the beggaring policies of OPEC, that need not be a bad thing. Because what went out came back, and in the process financed 10,000 points on the Dow and a hell of a lot besides. Why? Because there was no longer an alternative. Readers below a certain age are going to find this hard to believe, but I can remember trying to travel abroad at a time when nobody wanted dollars!
Obviously OPEC wasn’t the whole story; it simply got the dollar ball rolling big-time, helping it attain a velocity that no power on earth dared get in the way of. Thanks to the baby boom coming of age, and our open borders, and the 1960′s financial boom, we had everything it took to absorb the kind of currency surplus that, on the other side of the world, would sink the Japanese economy, which rested on too small a physical base. It’s interesting to think how things might have turned out if Japan had changed places, physically, with China. I think the Japanese know.
Anyway, the United States had a growing, diverse, huge consumer market, serviced by a high-flying credit mechanism-the physical and financial space capable of absorbing all the dollars that could be printed. Only a world awash in dollars to the extent this is could tolerate the absolute absence of prudence that has characterized so much dot-com investment. Indeed, much dot-com investment simulates the dollar boom of the past 20 years, in which what could not be earned could always be borrowed, and could thus still be spent.
Sooner or later, however, the propensity to spend without earning runs up against a wall. Prices are raised. People begin to get that feeling of paying more for less. They become, first, economically resentful, and then politically so. We live in violent times; civil war is endemic, driven by tribal passions, by cultural differences, by the wish to possess. There is only one truth under the sun, which is that inflation is always trouble.
That Harry Potter now costs $2.59 more at Amazon is not what I regard as a good omen. I wonder how they regard it in Baghdad, or Hanoi, or for that matter Paris, or in any of the thousands of other places around the world that have been dollar-bullied into hating this country.