My mother used to quote “an old saying” that she learned in her youth. It sounded like something from the Depression, but it was actually a World War II slogan.
“Use it up, wear it out, make it do, do without.”
An old saying?
Most of us had never seen economic conditions like those in WWII–until today. The war created a massive labor shortage as troops shipped overseas. Women stepped up to fill the void, but the farms and factories they worked in were feeding the war machine.
As for the supply chain, forget about anything imported. Ships weren’t waiting to be unloaded in the ports. If they were not being used for the war effort, merchant ships were sitting ducks on the open seas.
Oil and gasoline went overseas for ships and tanks and planes. We all know now what war does to the international oil markets.
If it wasn’t made at home, it probably wasn’t on the shelves.
Suddenly we had two-income families with plenty of cash trying to buy goods and services that were scarce. As we’ve seen since the pandemic, that’s a classic scenario for inflation.
The government tried many things to ease things for consumers. Rationing and price controls only drove buyers to the black market. Taxes and even war bonds were designed to take some money out of circulation and into the war effort.
None of these attempts really worked. The real solution to high prices is to reduce demand until the supply can catch up. That’s what this campaign was all about: spending less and saving more for the future.
Supply and demand
In recent years, central banks like the Federal Reserve have attempted to control inflation by adjusting interest rates. When interest rates go up, so does the cost of borrowing for mortgages and other loans. That reduces demand for major purchases such as homes, real estate, and cars. But it also increases the cost of doing business, and too much can increase the risk of a recession.
Ironically, high prices are themselves part of the cure for inflation. All things being equal, as prices go up, demand goes down. It’s already happening. Consumers are finding ways to cut back on their spending.
Gasoline prices are coming down for two reasons. The first is reduced consumer demand because of the high prices. The second is increased production, which started well before President Biden called on oil companies to pump more.
More irony: The president has floated the idea of a “gas tax holiday” to ease prices for consumers. The ones already in effect in states like Connecticut have had little change on prices.
Maybe that’s a good thing. The federal gas tax funds highways. New taxes would have to cover that shortfall. And by artificially reducing the cost to the consumer, we could see more demand that would drive prices back up again.