Truth-teller in the news media

February 26th, 2008

Share |

In our previous article, Example of vested interest groups undermining the economic interest of others, we expressed our scepticism on the mainstream news media to report in the best economic interest of their readers. But there is at least one journalist who dares to step on the tails of vested interests. In Rents will rise regardless of rates, Ross Gittins wrote that:

We’ve heard it suggested a lot lately that, since many landlords have borrowed to buy the homes they let, any interest rate increase they suffer will be quickly passed on to their tenants.

We’ve heard it suggested, but is it true? No it isn’t. The line that whenever businesses’ costs go up they just pass them on to their customers – known as the cost-plus theory of prices – isn’t economics, it’s just business propaganda.

For a start, ask yourself why, if businesses can pass on their cost increases so easily, they still complain so much about those increases? Why should they care?

In truth, business people know they can’t pass on cost increases so readily, but claim to be able to do it in the hope of eliciting their customers’ support in their efforts to persuade governments to prevent the increases.