Why do we have inflation? Why is healthcare getting so expensive so fast? How is gas still cheap? Why do prices go up at all?

There are three reasons prices go up (or down).

1. Change in total supply of currency.

This is the traditional definition of inflation. By adding currency to the system you increase the dollars available with which to buy things without a change in demand for the stuff you’re buying. That results in competition for resources in the form of bidding up the price. This is why real estate is stupidly expensive – easy credit equals more currency.

2. Change in quantity or quality of the thing purchased.

Cars are more expensive today (adjusted for inflation) because they are safer, bigger, faster, quieter, and more reliable. That comes at a price.

3. Change in the demand for the thing without supply matching the change.

If lots of people want the same thing but there isn’t enough to go around, the highest bidder wins.

There are a few things that fight against these trends to make prices go down. The most significant are improvements in production methods and increased supply.

Why do we have inflation? Because we have a currency system that lets the government and banks create dollars at will. Since we are greedy creatures we create more and more, bidding prices up more and more.

Why is healthcare so expensive? More and more new ways to combat sickness and disease (#2), and an increase in demand due to an aging population (#3).

How is gas so cheap? Demand is going up, but supply is going up faster. OPEC Nations need to sell it to fund their governments, we added Iran a few years back to the supply, and moved into shale oil. That’s a very temporary supply glut that’s going to change in 5-10 years from a lack of capital investments in new supply.