Demand Side Economics

We hear a lot these days about the effects of inflation on average Americans (whoever they are).  And we see a lot of finger pointing when it comes to the causes.  Greedy corporations.  Supply chain disruptions resulting from the lingering effects of the pandemic.  Federal Reserve policies.  The growing federal debt.  You know what we do not hear.  Anything about the responsibility of consumers to fight inflation.

Despite the fact the current inflation rate remains almost twice the Federal Reserve target of two percent, consumer spending continues to rise.  Which suggests, every consumer could help by following what I call the Dr. ESP “Fight Inflation Now” shopping principles.  Making discretionary purchases only when they are on sale or looking for a less expensive brand substitute or generic alternative.  Let me give you an example based on my most recent purchases at Publix.

  • Every Thursday, Publix publishes a list of BOGO (buy one, get one free) items for the next seven days.
  • Make a list of products you normally buy that are on the list.  Last Friday this included a favorite brand of cereal, Thomas’ bagels, Philadelphia cream cheese, side dishes such as Betty Crocker mashed potatoes and macaroni and cheese, pulled pork BBQ, buns for the BBQ and frozen pizzas.  For perishables, one is consumed immediately while the other is frozen for later use.
  • Next look for sale items, even if the sale price is at or slightly more than you used to pay “in the good old days.”
  • Finally, get the staples (e.g., milk) you need that may not be on sale.

Did it make a difference?  The receipt showed that even though I purchased milk and toilet paper at the retail price, the total bill was $58.67 after a savings of $38.13.  There has been one other side benefit from this system.  By substituting brand names, we have discovered new favorites which have permanently replaced old standards.

Why does the system work?  Instead of supply chain disruptions, consumers create demand chain disruption.  Consider the following.  If consumers follow the Dr. ESP “Fight Inflation Now” principles, prices decline as consumer behavior works its way through the demand chain as follows.

  • Sale items lower the retailers’ revenue, squeezing their already narrow profit margins (especially for grocery stores).
  • Stores will then order less from brokers or produce account representatives whose commissions will suffer.
  • These middle agents will then do one of two things.  Independent brokers will devote their time and energy to higher volume products.  Manufacturers’ product representatives will report decreased sales to the home office.
  • In either case, manufacturers, facing potential loss of market share, will likely reduce prices or offer more promotions.

Can it make a real difference?  I will let Arlo Guthrie answer that question.

You know, if one person, just one person does it they may think he’s really sick and they’ll ignore him. And if two people, two people do it, in harmony, they may think they’re crazy.  And three people do it, three, can you imagine, three people walking into Publix, only buying products on sale and walking out. They may think it’s an organization. And can you, can you imagine fifty people a day, I said fifty people a day walking into Publix, only buying sale items and walking out. And friends they may think it’s a movement. And that’s what it is, the demand side inflation massacre movement.  And all you got to do is follow the Dr. ESP “Fight Inflation Now” process the next time you go into Publix or any other retail store.
For what it’s worth.

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