Inflation Ate Your Free Lunch, but You're Still Better Off

Such concerns were not top of mind in an era of very low interest rates. Investors — often venture capital firms — flush with cheap capital and public-sector pension money (which we are all on the hook for), were hungry for risky long-shots. If a few of those long-shots paid off big, everyone would still make money. So they were willing to tolerate losses if their investments could demonstrate a growing market share. Except then the pandemic hit and labor wasn’t so cheap anymore. Then interest rates started to increase and tolerance for losing money evaporated. So now what was once a $10 car ride is $50.

Low rates didn’t just allow investors to sustain money-losing tech ventures. They also meant companies could bulk up on corporate debt, which subsidized even more cheap services. Before the pandemic, Netflix earned a junk bond rating because it took on so much debt to offer endless content. Now higher rates have increased the cost in borrowing and subscriptions have declined, so we’ll all have to watch ads (effectively a tax on our time) or pay more every month.

Inflation is the other shoe to drop. Alexis Leondis wrote a rage-inducing column last week on “drip-pricing.” This is when we are charged extra fees for things that used to be included in the price, from picking your airline seat to paying for credit card transactions. Now with higher inflation, firms are trying new, more opaque way to pass on their costs to customers. But even if inflation goes back down, many of these fees will probably remain. And if you’re suddenly paying “fuel surcharges” and “kitchen appreciation fees,” you probably won’t be indulging quite as often.

This means that, in addition to the inflation we’re already experiencing, we’re going to start paying for things that were previously subsidized by low rates and low price growth. Odds are, prices for these services will never be so cheap again. Rates and prices are going up and may stay higher for the foreseeable future. So unless you have unlimited money, things like car services will become a luxury again. This is an unambiguous fall in living standards: Instead of getting more, we’ll get less, and it will be painful.

Take heart. It may not last forever. I don’t know what will happen to interest rates or if future consumption might be subsidized. But I am optimistic that new, even-better technology and rising prosperity are in our long-term future.

It may feel like a small consolation now, but all this new technology did make us better off. Even without the subsidy of low interest rates, we still have more choices and cheaper services than we did 20 or 30 years ago. Perhaps people hate loss so much that it’s worse to lose a subsidized Uber than to have never Ubered at all. But I don’t think so.

Allison Schrager is a Bloomberg Opinion columnist covering economics. A senior fellow at the Manhattan Institute, she is author of “An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.”