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Some sectors may have decent competition, but external factors may be choking supply. For example, if there's a sudden spike in demand for, I don't know, remod

Some sectors may have decent competition, but external factors may be choking supply. For example, if there's a sudden spike in demand for, I don't know, remodeling homes, even perfectly competitive suppliers will take time to increase production. Pine trees take time to grow before they can become 2x4s I suppose. Then there's the question of if they believe the spike is temporary, in which case it may be too costly to expand production enough to restore the old equilibrium.

swsieber 4y ago
In addition, my understanding is that there were a lot of skilled workers let go during the pandemic that aren't (or won't) come back, which is a huge choking point.
- formerly_proven 4y ago
  This is always curious, but doubly so in times where "good pay deal" means the net pay cut for 2022/23 is just a single digit %. At the same time some people yell about pay increases causing inflation - triply curious.
dmix 4y ago
That's not necessarily a problem you can do much about though, it's just the nature of markets (and life in general) where some things just move slowly. Supply trails demand or investment in supply was over-optimistic vs actual demand. There's some ways to deal with it like futures contracts and strategic reserves... or more aggressive gov intervention like how Quebec built their awful maple syrup cartel via forcing companies to stockpile supply centrally. But mostly there's some hard limits to how much you can optimize a market.
otherme123 4y ago
Demand spikes or supply bottlenecks are the normal drivers of price increases. Market and competition doesn't mean "stable prices for all eternity", but "the market is the best tool we currently have to dynamically adjust to a changing environment". Following your example, a lack of 2x4 has to drive timber prices up, so the scarce resource is used where is most needed: to the people who is paying the higher prices. If that people is wrong in their predictions, they will suffer the consequences. The market dynamics should 1) allocate the current available 2x4 where they are more needed, 2) accelerate the production of 2x4 that previously were non profitable (e.g. remote forests) and 3) explore possible substitutes previously non profitable. But when you study inflation history, you notice it's always blamed on the business raising prices. With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall. If prices are increasing everywhere, someone is playing foul with money. Sometimes and for short periods it can happen a credit expansion or crunch (imagine people hoarding or spending gold thus varying the amount of money in circulation), but that won't extend for long unless someone is minting gold coins with some cooper in them.
- pjc50 4y ago
  > With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall I don't think this is evident at all - a supply shortage will still cause a price increase? Nothing in the classical demand curve model depends on money supply. You can get shortages that increase prices in one area and change the distribution of consumption and investment. The business cycle is still real, and indeed theory was developed around it, even on the gold standard. But this is something missed by all sorts of hard money advocates. Using bitcoin can't stop OPEC from driving up the price of oil, for example.
- treis 4y ago
  > spike in timber prices is only possible if other prices fall. This isn't true. If there's less stuff being made then prices go up and people get to buy fewer things. Which is roughly what happened during covid.
  - otherme123 4y ago
    Covid was a very special an unique event. But even then the following prices plumeted: hotels, travels, vacations, etc. And in general, the CPI for the hardest part of the event (march, april and may of 2020) was negative: demand fell even more than the offer, and prices went down.

swsieber 4y ago

In addition, my understanding is that there were a lot of skilled workers let go during the pandemic that aren't (or won't) come back, which is a huge choking point.

formerly_proven 4y ago
This is always curious, but doubly so in times where "good pay deal" means the net pay cut for 2022/23 is just a single digit %. At the same time some people yell about pay increases causing inflation - triply curious.

dmix 4y ago

That's not necessarily a problem you can do much about though, it's just the nature of markets (and life in general) where some things just move slowly. Supply trails demand or investment in supply was over-optimistic vs actual demand. There's some ways to deal with it like futures contracts and strategic reserves... or more aggressive gov intervention like how Quebec built their awful maple syrup cartel via forcing companies to stockpile supply centrally. But mostly there's some hard limits to how much you can optimize a market.

otherme123 4y ago

Demand spikes or supply bottlenecks are the normal drivers of price increases. Market and competition doesn't mean "stable prices for all eternity", but "the market is the best tool we currently have to dynamically adjust to a changing environment". Following your example, a lack of 2x4 has to drive timber prices up, so the scarce resource is used where is most needed: to the people who is paying the higher prices. If that people is wrong in their predictions, they will suffer the consequences. The market dynamics should 1) allocate the current available 2x4 where they are more needed, 2) accelerate the production of 2x4 that previously were non profitable (e.g. remote forests) and 3) explore possible substitutes previously non profitable. But when you study inflation history, you notice it's always blamed on the business raising prices. With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall. If prices are increasing everywhere, someone is playing foul with money. Sometimes and for short periods it can happen a credit expansion or crunch (imagine people hoarding or spending gold thus varying the amount of money in circulation), but that won't extend for long unless someone is minting gold coins with some cooper in them.

pjc50 4y ago
> With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall I don't think this is evident at all - a supply shortage will still cause a price increase? Nothing in the classical demand curve model depends on money supply. You can get shortages that increase prices in one area and change the distribution of consumption and investment. The business cycle is still real, and indeed theory was developed around it, even on the gold standard. But this is something missed by all sorts of hard money advocates. Using bitcoin can't stop OPEC from driving up the price of oil, for example.
treis 4y ago
> spike in timber prices is only possible if other prices fall. This isn't true. If there's less stuff being made then prices go up and people get to buy fewer things. Which is roughly what happened during covid.
- otherme123 4y ago
  Covid was a very special an unique event. But even then the following prices plumeted: hotels, travels, vacations, etc. And in general, the CPI for the hardest part of the event (march, april and may of 2020) was negative: demand fell even more than the offer, and prices went down.