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Some Economists are Mad at Amazon… For Lowering Your Grocery Prices

Last week, Jeff Bezos sent Keynesian economists into a frenzy with the announcement that Amazon.com would be purchasing the Whole Foods grocery chain.

So why were the Keynesians in despair? Because Jeff Bezos is going to lower your grocery prices.

You read that right.

Take this coverage from Bloomberg:

When online retail giant Amazon.com Inc. announced last Friday that it would purchase Whole Foods Market Inc., a plunge in retail and grocery stocks reinforced the disinflationary tone set by three straight months of disappointing data on consumer prices. It’s an example of the technological forces that are increasing competition and further limiting companies’ ability to pass on higher wage costs to customers companies are struggling to raise prices. [Emphasis added]

Gadzooks! Grocery stores will have a harder time raising prices on American families because of Amazon! Bezos has some nerve!

Let’s be clear: economic commentators are actually lamenting the fact that consumers are going to save a tremendous amount of money due to technological innovation in the grocery supply chain. One must wonder if these same commentators sit at home stewing about how regrettable it is that television sets and computers are far cheaper now than they were decades ago, too.

Of course, the reason why Amazon’s announcement was troubling to some is that the prevailing Keynesian economic models believe that constantly higher prices are needed for maximum economic growth.

Rather than working to achieve a stable dollar (as found under the classical gold standard), the Federal Reserve sets an annual 2 percent target for inflation. As market analyst Peter Boockvar noted:

To say we need to raise the cost of living by 2 percent is somehow going to make a better economy remains outrageous and remains in the halls of academia and not real life…It’s reducing the purchasing power by 2 percent.

CNBC economic commentator Larry Kudlow has echoed this sentiment, stating:

Yellen doesn’t like rules. The closest she gets is a 2-percent inflation target. But you know what? Over a normal lifetime, 2-percent inflation will quintuple the price level, doing enormous damage to consumers, savers, businesses, and the economy.

Forbes.com’s Jeffrey Dorfman also reminds us that inflation is bad for our economy, writing:

Inflation makes a big difference to savers and borrowers. For savers, inflation is a tax on your wealth; for borrowers, it is a subsidy as you get to pay back your loans using dollars that are worth less. Obviously interest rates are set to hopefully account for this, but that is based on expected inflation. When actual inflation is higher or lower than expected, somebody wins.

We shouldn’t be cheering for constant inflation; we should be rooting for a sound dollar.

While the Federal Reserve’s 2 percent inflation target has given us economic growth hovering around a pitiful 1 percent, Forbes.com contributor Nathan Lewis reminds us that “the correlation between the gold standard and stupendous growth is clear.”

Forbes.com’s Peter Ferrara concurs, adding the gold standard is “the foundation for restoring booming economic growth.” Under the gold standard, “the dollar maintained its stable value, without inflation, as well.”

Don’t buy into the Keynesian pessimism on Amazon’s new acquisition. Your July 4th barbecue could be a little less expensive because of Jeff Bezos, and that’s a good thing.

Photo credit: Atomic Taco via Flickr, CC BY-SA 2.0

Jonathan Decker

Jonathan Decker is the Chief Economic Correspondent for TheNationalPulse.com.