High corporate profits and high inflation. Those need to be addressed regardless of recession or not.
I'm sorry what? Profits now need to be reduced? That seem the opposite of economic growth.
I'm sorry what? Profits now need to be reduced? That seem the opposite of economic growth.
The 1970s saw high inflation and low profits, suggesting that corporations were facing enough competition that they absorbed as much of the price shock as they could before they passed price hikes to the consumer.
Low unemployment points is a tight labor market, meaning there is also competition to get workers.
And the economy is hardly dominated by monopolies. Take a moment to tally where all of your money is spent, and see how many of those companies are anywhere near a monopoly. The vast majority of people's expenses is spent in competitive markets: housing, food, energy (no company is a monopoly in any of those markets - largest housing company has < 10% of market share, largest bank has < 20% of market, largest energy company has < 30% of market share).
Here is another take on the subject:
https://www.irishtimes.com/business/economy/paul-krugman-mon...
>So high profits and high inflation suggests an economy dominated by monopolies,
then pivot to
>Competition has decreased throughout the economy.
Competition decreasing is a far cry proving "an economy dominated by monopolies," which is simply not true.
>Or, to take another measure, in 1999 there were 8,000 companies listed on USA stock markets, but now there are only 3,400 companies
That says more about stock markets than number of companies. Fortunately the Census Bureau tracks relevant facts (and there are more at the BLS), and their data puts literally millions more businesses in 2019 [1] (the last year they have data) than in 1999 [2].
And nothing in their data supports "suggests an economy dominated by monopolies".
Care to explain how you measure dominated? As is most of consumer money is spent there? As in the majority of businesses? As in what?
[1] https://www.census.gov/data/datasets/2019/econ/susb/2019-sus...
[2] https://www.census.gov/data/datasets/1999/econ/susb/1999-sus...
High inflation means values are simply bigger, with no other changes needed, so increased profits are exactly expected in high inflation (along with high revenues, high prices, high costs, high spending, .... that is the definition of inflation).
So your claim that larger numbers "suggests an economy dominated by monopolies" is demonstrably not true. It can merely be inflation with zero other changes.
If I have more competition, I might trade off taking some of the hit from my increased costs while still passing some on to the consumer to offer a lower overall price than my competition and potentially increase my market share, which ideally still leads to greater profits due to increased sales.
Except your supplier.
Assume a company has gross margins of 100%, then they face a price surge in supplies, a price surge of 50%. If they are facing enough competition, they will pay the full cost of the price surge, lowering their gross margins to 50%. None of the price hike will be passed to the consumer.
This is economics 101, if the subject really interests you, there is plenty on the Internet that you can read on this subject.
Here’s an example that I have from a good source: Early on in the pandemic grocery stores started charging more for one food company’s products. This is a major, national brand. They hadn’t raised prices and the stuff they make wasn’t the kind of thing that flew off shelves like bread and tortillas did back then.
For many months this continued until the company said “screw it” and raised their own prices to match.
Clearly the competition between grocery stores didn’t have an effect. While the food producing company might have worried about the higher prices leading to less sales they couldn’t really do anything about it and decided they might as well take the profits instead.
First, gross margin is not net profit, which more accurately represents what a company could possibly absorb. Second, no industry has even gross margins near 100%; more accurate is around ~35% [1] .
Assume a company has actual net profits of 5% (more in line with actual net profits), and cost of goods (or labor) goes up 10-20% (and same for all their competitors, since all are sourcing goods in the same markets).
Then they pass cost on to consumers or go out of business.
This is a more accurate model using real world numbers from the current economy.
And if high profit means "innovation" it seems like "getting rid of high profit" is the wrong decision?
In other words, the supply is insufficient in the face of overwhelming demand, which is why prices increase in a functioning economy.
Inflation is always a result of monetary policy; if the cash in the system (low interest rates, quantitative easing, government stimulus, etc) is increased without a corresponding increase in output, then inflation will naturally occur because demand for goods and services will increase beyond the capacity of supply. (h/t Nobel Prize winner Milton Friedman)
But, if economic output is actually decreasing because of those same economic policies (such as hiking interest rates or external factors such as war in Ukraine), then we can easily enter stagflation, which is stagnant growth with rampant inflation.
We've had three periods since WWII where inflation hit double digits: the period immediately following the war (1946-1948), 1974-1975 during the oil crisis, and 1979-1983 following Carter's disastrous presidency (partly what he inherited, and then he made it much, much worse).
In the last period (79-83), Paul Volcker immediately took strong action to control inflation by hiking interest rates through the roof. This caused immediate economic pain, but, in concert with lower taxes and reduced regulation, it succeeded in ushering in a strong bull market that lasted, by some definitions, decades.
That's why the central banks are acting strongly to reduce inflation by raising rates, assuming they have the stomach to keep it up even as it might force the economy into a temporary stall: controlling inflation by reducing the money supply through higher rates has historically made for a stronger economy in the near future, and rates can always be reduced to inject stimulus into the economy if needed.
Here's another Milton Friedman quote: "Inflation is the one form of taxation that can be imposed without legislation."
I don't think this is true at all, look at the rise of "store brands" often time they are of lower quality and people still pick them because they are cheaper
As an example of a brand people to seek out, People do not buy Toyota brand because it is "fancy" they buy it because it has worked hard to cultivate a reputation for reliability across all of its market lines, where other brands have known to cut corners in quality to lower prices
For example, I will buy Brand name Advil not because the generic is less effective, but because every generic I have found is EXTREMELY bitter to me and the Brand name is not. This is an inactive ingredient, but it makes the product worth more to me, so I buy it.
In your mind I am just buying "for the brand name" when there are "perfectly good" alternatives out there, but to me the alternative are of inferior quality and or missing something I find to be important.
Under perfect competition the economic profits would approach zero.
But you can still have unlimited of accounting profits, even in a perfectly competitive market provided you are delivering enough value to customers with some sort of unique value proposition.