Is the Cost of Living Our Fault?

Every so often, someone on TV blames consumers for high prices, claiming that because we continue to purchase expensive supermarket goods, prices remain elevated. In principle, this argument is true, but it oversimplifies a complex economic phenomenon—one that can be understood through the lens of the prisoner's dilemma, particularly when multiple participants are involved.

In a classic prisoner's dilemma, two individuals must decide whether to act in their own self-interest or cooperate. If each informs on the other, both receive a harsher punishment. If both stay silent, their punishment is reduced. However, without knowing what the other will do, self-preservation often leads both to make the choice that results in a worse outcome for both.

In our real-world scenario, every consumer faces a similar predicament: should they avoid buying overpriced products to collectively drive prices down, or should they secure necessary goods despite high costs to avoid missing out? The problem arises because there is no guarantee that others will refrain from purchasing, so most individuals continue buying, thereby sustaining high prices.

This makes it somewhat unfair to blame people for the cost of living when each person is simply looking out for their own interests.

What’s the Solution to the Prisoner’s Dilemma?

A central authority—be it a mafia boss or the government—could intervene to coordinate collective action. Of course, this isn't The Godfather, and democratic governments operate very differently from criminal enterprises. In theory, if a governing body could effectively organize consumers to boycott expensive supermarkets, prices would naturally decline. However, democratic governments lack the coercive power of a mafia boss, making such interventions difficult.

Some propose direct price controls or supermarket regulations, but these often create economic distortions. A more organic example comes from the ultra-orthodox community in Israel, where a chief rabbi can call for a boycott of a particular store, and the community follows suit, successfully driving prices down. Secular communities lack such central authority figures, leaving individuals to act independently and, in turn, perpetuating high costs.

A democratic government cannot penalize citizens for purchasing overpriced goods. Instead, the role of policymakers should be to help organize consumer actions, much like the chief rabbi or a mafia boss—though in a more structured, lawful manner. This is a complex and challenging task, requiring significant coordination and effort.

Of course, this is not an argument for dictatorship but rather an explanation of why it’s unreasonable to blame individuals for high living costs.