WHY ARE PRICES STICKY? 1) Any change that forces reordering of the PSST (network

WHY ARE PRICES STICKY?

1) Any change that forces reordering of the PSST (network of production) is a transaction cost that all seek to avoid, and avoid more so when risk increase from declining price pressure. People hold out. The entire chain gets more efficient. And they only switch when it’s no longer possible. This is just what people do. Particularly if relationships are involved. The more complex the relations the worse it is.

2) The individual who lives with little savings and high cashflow demands interprets changing jobs as the highest transaction cost other than divorce or devastating illness.

3) An entire organization can come apart if you reduce pay, because it affects the entire network of responsibilities of each person.

4) As the marginal value of talent has increased, and the marginal value of fixed capital has decreased, the influence of shocks on talent places higher risk to the organization- people are very difficult to replace but the best are the first to leave.

5) Net is that the side effect of little savings and higher consumption at high velocity, is stickier everything and worse adjustment to shocks.

Here in the ‘less advantaged world’ it’s not a problem. Oversupply of labor. Everyone is overqualified for everything. Lack of credit keeps everyone poor. Lack of credit because the government cannot be trusted not to appropriate anything and everything.

-Curt