Tool price increases: What is the real cause of the price increase ?

[Richard Coers]

Roger -- I mentioned a policies from the prior administration and from the current administration because I didn't want this to become a political debate -- with all the nastiness that today's political conversations too frequently generate. You can agree or disagree with the wisdom of Trump's raising tariffs. There are decent arguments on either side of the question. However, I hope no one will argue that raising tariffs tends to increase inflation.

Similarly, Biden's energy policies will, by design, lead to higher energy prices -- with the inflationary consequences described above. Again, you can agree or disagree with the wisdom of Biden's energy policies. There are decent arguments on both sides of the question. I had hoped no one would argue that Biden's energy policies were not inflationary. But, since your comment could be read as arguing that Biden's energy policies are not inflationary, please allow me to offer some additional color.

The cost of energy increased under Obama. Again, this was by design. His goal was to reduce energy consumption and thereby reduce our impact on the environment. Some argue that higher energy prices are a small price to pay for protecting the environment. Again, I'm not going argue for or against that proposition. I'm simply noting that was the position of the Obama Administration. The only reason these policies didn't result in general inflation is because of the very low growth of the economy coming out of the 2008 recession -- slow growth that lasted for the entirety of Obama's term of office. That's one way of fighting inflation -- reduce demand through anemic economic growth.

Trump's energy policies differed. He was in favor of energy exploration and development. While Obama said we could not drill our way into energy self-sufficiency, under Trump we did just that. This resulted in markedly lower energy prices, which was a boon to the economy.

Biden is returning to Obama's energy policies. The chart you posted ends in 2020. Energy prices, which are based on future expectations, started to rise immediately after the election. Today, the price as of the end of May 2021 was just over $85. Part of this price increase is our coming out of the COVID induced recession. Part is caused by Biden's energy policies and the expectation prices will return to the 'norm' during the Obama years. From an inflationary perspective, this go round, there is a lot of pent up demand. Thus, it is unlikely that the inflationary effect of increased energy prices will be swamped slow growth reducing demand. That may be the long-term result, but in the short term, sellers are feeling free to raise prices.

Will Biden's energy policies return energy prices to Obama levels? I don't know. However, I have a number of clients in the energy industry and that's the way they're betting.

David Attenborough has an amazing movie and book on his life in nature. At 93 he has witnessed the changes from humans on the natural world. Energy policies and our world must be planned hand in hand. https://www.youtube.com/watch?v=ad7mGfM-6kg

[David Walser]

David Attenborough has an amazing movie and book on his life in nature. At 93 he has witnessed the changes from humans on the natural world. Energy policies and our world must be planned hand in hand. https://www.youtube.com/watch?v=ad7mGfM-6kg

Richard -- I completely agree! As I said, I'm trying hard not to argue in favor or against any administration's policies. Those policies have economic benefits and burdens. They tend to increase or reduce inflationary pressures. If you want to understand why tool prices are increasing, you need to understand the role government plays in creating inflation. And, it's not just tool prices that are going up -- recently, corn prices went up over 500% on the spot market. Expect higher food prices at the supermarket.

[roger wiegand]

I wasn't going anywhere political-- at least not intentionally. My assertion was that energy prices fluctuate a lot, but, if you take the noise out, have not changed significantly since the early 1970's across administrations of all flavors, and are therefore probably not a driver of major long term changes in tool prices. I fully expect that trend to continue as new energy sources come online and become increasingly cost effective, higher efficiency is designed into buildings and equipment, and older technology is phased out. I see no reason to believe that US federal government policy is a primary determinant of long-term energy prices; they can certainly cause short term disturbances one way or the other, but world market forces (supply, demand, and technological changes) ultimately rule.

I think of my tool investments as a kind of dollar cost averaging over many decades, I buy new stuff fairly consistently when I need it, some when things are cheap, some when they are expensive, so I get the benefit of the long term average price trend. As you might guess, I don't try to time the market when buying and selling investments, either.

I'm actually not even sure that tools are particularly expensive now (ie this decade), vs 50 years ago when I started buying them seriously. Like cars, the capabilities of many of the tools are greatly improved, so while the dollar cost may be higher so too is the value. I loved my ancient circular saw, but no way will I give up my track saw!