One of the world’s largest investment banks: ‘Greedflation’ has gone too far
fortune.com
fortune.com
So the government tracks wages and unemployment, and sharply reacts when wages grow too fast.
But when it comes to profits, they can't even tax them correctly, let alone react to profits driving inflation.
Wouldn't agressive taxation be an alternative to raising interest rates in tackling inflation? Both reduce avaliability of capital.
Is there any reason why raising interest rate is 'fair' but a temporary 'inflation tax' is unfair?
They can, but corruption is getting in the way of doing so.
For instance suppose the marginal buyer would spend $20 for a product and the producer can produce for $18 and the market price is $19, resulting in $1surplus to each party. If a $3 tax was put on the product, the transaction wouldn't take place.
So you went from $2 social surplus to nothing and no tax benefit.
Any arbitrary price distortions will result in dead weight loss or the overall social surplus to go down compared to no distortion
The market price would be floored at $21 as it costs the producer $18 to produce and a $3 tax. The prior margin was $1 so realistically the producer would eat some of the increase and charge $21.50
For the person who values the good only at $20, no transaction would take place. If eventually the producer cost went down to something like $16, maybe the price would come down to $20 or below but then there's the marginal consumer that values it at $19.
Price distortions almost always result in a dead weight loss. Only in perfectly inelastic products does it not exist
Yes, some trades will not take place take after the distortion, but the the person valuing the good at 20 and still be unwilling to pay 23 after an extended time period in which they're unable to buy it is extremely rare.
thou imho the point is that this increase in markup has to go somewhere it didn't before, which in turn suggests a decrease in efficiency.
Corporations typically are charged a flat percentage tax rate.
One could charge corporations a progressive tax rate, just like people.
You continue to tax corporations just on profits, but the higher the margin (profit/revenue) the higher tax rate.
It disincentivises gouging and could even bring in more revenue for the state (less need to over tax people).
It would also make it harder for the wealthy to dodge tax by billing what should be personal income via corporate shell structures as in most cases that revenue would appear as > 90% profit, attracting a very high tax.
They do so to the limit the law allows.
The only extra control they have here is the "revenue" part of profit/revenue.
And the only way they can change that is by charging their customers less.
Which is the objective of this entire article/thread.
Unless I completely misunderstood your point you want Microsoft to pay a higher rate because its margin 67/205 = 33% is higher and Walmart to pay a lower rate because its margin 14/573 = 2% is lower.
How much would Walsoft pay on its $81bn profit given its 10% margin?
It depends on the link between margins and tax rates. However, one may imagine that it could be less than what Microsoft alone pays on its $67bn profit given its 33% margin.
Also the point is to disincentivise gouging, Walmart doesn't need to be given a lower rate just because Microsoft is charged more.
As to corporate mergers, if the state feels it is a tax dodge it can either veto the merger, or stipulate that each part be taxed as an independent entity.
Not to mention that Microsoft would probably prefer to reduce it's margins by just charging less (slashing revenues by 20% should more than halve the tax burden and likely strengthen it's market hold) or pour profits into R&D than to merge with a less profitable company.
And that's before you get into the mess that a giant tech/retail merger would entail.
It's ad-hoc regulations all the way down...
> And that's before you get into the mess that a giant tech/retail merger would entail.
Why? That seems less problematic from a regulatory point of view than a tech-tech or retail-retail merger.
If a tech-retail entity is problematic in itself maybe they should force the break up of Amazon - or at least tax each part separately, right?
You are already doing this to determine profit (for the existing tax regimes).
All that is required is to take gross revenue (a more basic, simpler value that is already known to determine the current profit calculation), and divide profit/revenue.
There may be an incentive to amortize more evenly, but that is typically what you should be doing (amortizing is meant to spread a one-off cost over the period of the resultant benefit) ... currently the incentive is to book costs early to postpone apparent profit and the resulting tax, which is usually both trickier and less moral/honest.
The tax paid is an increasing, convex function f of some measure x of "profit". I'm not sure how to normalize by company size (or if you should). First, let's say x is per-capita profit, "capita" being the number of employees. Let's also say that the tax f(x) is also per-capita.
Now say there are two companies, 1 and 2, and for simplicity say they each has a single employee, the owner. They would pay a total tax f(x1) + f(x2) to the government, on a before-tax profit of x1 + x2.
If those companies merged, then they'd pay a tax 2 f((x1 + x2)/2), again on a before-tax profit of x1 + x2.
You can just divide both sides by 2, the total number of people involved, to get the usual statement of Jensen's inequality:
(f(x1) + f(x2))/2 > f((x1 + x2)/2)
Thus, with my choice of per-capita normalization, this tax scheme incentivizes mergers. Probably it also does so for other normalization schemes. (What are other reasonable denominators?)
This incentive goes away if the tax isn't normalized at all. In fact, then it mostly just disincentivizes largeness. Which, on the surface, might be a good thing, given that we have too many monopolies. On the other hand, it might incentivize some kind of artificial splitting of corporate structures (not that this isn't a common thing already, what with "Double-Irish Dutch sandwiches" or whatever they're called).
Possibly anything that isn't linear will be gamed in some way.
And, not to sound like an apologist for the capitalists, but it's true that when they take their profits out of their companies, then they will be hit by convex taxes which are a little harder to game (though there is still marriage and other things). And that doesn't prevent companies from amassing stockpiles of cash -- representing power for their owners -- without paying out.
I like this general direction, but it needs some "red-teaming".
Because the former puts more burden on average citizens and the latter would hurt the ruling class.
Taxes would be a great vehicle for this, because they would probably do a much better job of filling the fed's dual-mandate. But because the fed can't raise taxes, and congress can't do literally anything, we're stuck with the response that we have where a non-elected body is leaning on the only lever it has to run our economy.
> Earnings per share are expected to decline 7% year-over-year, according to a note from the bank published this week, along with a "significant deterioration" from the -1% year-over-year growth posted in the last three months of 2022.
https://www.businessinsider.in/stock-market/news/investors-s...
One of the biggest losers is supposed to be healthcare(20%). Is that because they had a huge spurt because of the pandemic and now there is a reduction? I am not sure what the other industries are so I am not sure what to make of it.
There’s a huge difference. What they’re predicting probably means profits will still be a lot higher than many quarters in the pandemic, and much higher than Pre-pandemic profits.
https://ycharts.com/indicators/sp_500_eps
Most of the 2010s had EPS in the 20s. The late 2010s (2018 onwards…right after the massive tax break incidentally) has an EPS in the 30s.
It drops to the teens in the beginning of the pandemic, rising to peak above 50, and is still in the mid 40s. A 7% drop would still keep EPS in the 40s, well above anything it touched Pre-pandemic.
What’s worst is that this is with the backdrop of a much stronger dollar than ever, which means that these dollar earnings are increasing after compensating for conversion losses from the RoW, which indicates American consumers are being charged a lot more money.
There are no "mom and pop" grocery stores in my area. We have "Metro" or "Express" versions of the mega chains instead. You can stand outside one and see two others and there won't be a single independent until you get into a different area that the chains don't consider sufficiently profitable.
The mature businesses dial up the greed when there is no competition and dial it down to crush threats. Once the threat is extinguished, up the dial goes again.
Along with all your startup costs, you will be competing against entrenched businesses willing to run at a temporary loss to bleed you dry. They can afford to do this because greed will pay after you are dead.
Capitalism does not create efficient competitive markets offering good value to consumers, government intervention does.
Second, it's exactly that kind of differentiation (offering a niche product that the larger, more generic stores don't want to) that makes it easiest to avoid being undercut and run out of business by larger players.
Now, if you said you had several different small local grocery stores thriving without any specific niche, that would be somewhat more surprising.
You’ve just described what is called “competition”. Having to lower prices to keep up with competitors.
Also, if there is a clear winning pattern of a single player takes all market, that’s super attractive to competitor investors because they only need to outlast your warchest.
What you’ve described is a very unstable game theoretic condition and it’s basically a non-issue everywhere in the US except for markets with regulatory capture (i.e. high government regulation).
I challenge you to point out an example of a one grocery-store city where that strategy has worked to keep competitors out.
Suppose a larger company is selling a product that competes with yours at a loss so as to undercut you due to other sources of profit. Do you think that sort of competition is fair? Does that result in the best product winning the most market share?
> I challenge you to point out an example of a one grocery-store city where that strategy has worked to keep competitors out.
Not the GP, but recommend The Wal-Mart Effect by Charles Fishman.
That requires convincing investors the business is actually profitable (which is unrelated to the actual profitability of the venture)
https://www.macrotrends.net/stocks/charts/KR/kroger/profit-m...
Actually Publix does very well at 7-8% and it’s the largest employee owned company in the US.
https://www.barrons.com/visual-stories/what-publix-can-teach...
The original article is. The whole thing is presented as if it's some moral failure on the part of CEO's. Their only solution is price controls. There isn't one mention of breaking up the huge number of monopolies which dominate nearly every area of commerce.
All of those stimmy checks had to end up somewhere. Classical economics predicted the consequences of the Covid monetary response. It’s been textbook.
And yet we want to blame everything else except the actual causes.
That still allows growth to a dangerous size. A more simple solution tgat avoids worrying about details would be to limit maximum size in general, to guarantee that there is competition.
But when every other price is changing it becomes easier to change your price. And so suddenly you get 20 years of cost increases in a single jump.
And yes, we've noticed it, and so have people around us. My in-laws have been frequently heard complaining about price increases on products (their grumbling tends to start with how the price has increased since last year, then go on to declare what they remember paying for it in about 1965...).
We've also had rampant shrinkflation during that time. Remember, for instance, how ice cream used to be regularly sold in half-gallons? But now is instead sold in 48oz tubs, without any particular acknowledgement of the change.
But when the price increases aren't localized to one specific store, it doesn't matter that people get annoyed at it. Worst case, they'll just start buying less of the thing.
In 2022 you complain about everything going up in price.
Prices have certainly risen across the board more quickly and noticeably in the last year or so than previously. That doesn't mean that I haven't noticed prices rising broadly for the past 20 years.
Maybe you haven't. I don't know. I wouldn't presume to tell you what your experiences are.
Sure, the cost of gas was high. And yeah, the dollar is extremely strong (although a strong dollar should have made things cheaper in the US with net imports), but even using a dollar/Euro conversion rate at its historical peak (about 1.6 dollars to the Euro), had things way cheaper.
Eating at the finest fine dining restaurant in Milan was as expensive as a sit down meal at a regular restaurant in the US. And that’s before adjusting for the fact that the US sticker prices did not include tax and you needed to pay 20% tip.
I’ve been to Italy before and while it was never expensive, this was the first time I felt it was cheap.
The U.S. feels poor. Italy feels so much more advanced. Despite the fact that the latter has a fraction of the per capita income of the former.
- lockdown ends: everything is 30-100% more expensive.
as george carlin said, "they want it back".
The vast majority of government handouts during covid went not to consumers, but to the very corporations now raising prices - $400 billion in PPP loan forgiveness alone is a hell of a handout to corporate america.
At least these massive amounts of cash came in response to a disproportionately more massive world event.
And yet I don’t see complaints about that massive handover of cash which wasnt even in response to a problem.
We've just had a period of extraordinarily low interest rates, government checks going directly to citizens, and constrained supply chains.
Why blame inflation on anything but the obvious?
However, as Keynes pointed out, in the long run we're all dead and yet the free market works its magic over the long run. In the short term, there's panics and opportunists that destructively exploit crisis situations. I think it was Stiglitz who pointed out that a few countries that temporarily blocked capital flight during the 90s Asian crisis recovered much more quickly than the rest.
The bailouts were state socialism.
We need to separate our payments system and money supply from banking investments and loans so that banks are no longer "too big to fail".
when all bad news is considered bullish, it shows how rotten and warped the system has become.
So while it might be the "end of capitalism" it is not a mistake, but the final goal
But in Europe inflation is also being driven by high energy prices due to the war in Ukraine.
After the biggest money supply growth in recent history the Fed somehow forgot basic economic concepts and its mandate for a full year. This is simply unbelievable. QE printing was still going on - in massive amounts - while inflation is showing up and the Fed is speaking nonsense about transitory inflation.
This game is rigged. The Fed is malicious, unpredictable and intentionally lying. It doesn't feel like the Fed is doing the best decision, it feels like the Fed is making intentionally unpredictable and even irrational decisions so that insiders, most likely big banks, could get to unravel their investment positions at the expense of the whole economy.
And yet, despite the 600% increase in supply of dollars, the dollar is stronger than ever.
Whether the money supply is responsible for the inflation or not, this is not basic supply and demand. It’s the exact opposite of basic supply and demand.
Fun fact: the phrase "late-stage capitalism" was coined about 30 years before "woke" was used by American folk and blues singer Lead Belly.
On the plus side, while the latter has only recently drifted from a specific meaning into popular flag waving, the latter has always been used by literal communists (e.g. Lenin) as a member of wishful thinking about why this time it will be different, this time capitalism really will come crashing down, this time we can all just be nice to each other and nobody needs to be nailed to anything.
At this rate, a Vogon Construction Fleet is about as likely as capitalism eating itself.
Did you like miss the entire financialisation? Today is not like 30 years ago.
The amountof moneu invested in 3rd order financial derivatives dwarfs the amount of money we invest in real physical cool like infrastructure.
The amount of concentration in supply chains has also never been seen in the entire world history- many high tech good like hard disks are only made in 1 or 2 locations in the world.
Finally, crash of current capitalism does not mean we will have communism, we will just have another capitalism that is less retarded. Kind of like how we replaced the gold standard.
Same argument applies to someone speaking at the dawn of WW1, the great depression, Roosevelt's New Deal ending laissez-faire, WW2, the cold war, and at the fall of communism.
The first item on that list, WW1, was about 12 years after "end stage capitalism" was coined, while that blues singer singing about "woke" was around the New Deal era.
Capitalism requires an even monetary playing field.
Almost everyone — capitalist, communist, anarchist — believes in an even playing field. Half the disagreement is about what "even" (or "fair") means.
This is also why people throw the exact same criticisms in the opposite direction, at all the attempts at communism over the years: "it's not real communism because $foo, it was really just state-capitalism", which often seems to me to be a criticism of governments taking the "wrong" idea of fairness rather than connecting with the underlying social/economic presumptions backed into The Communist Manifesto.
(Personal opinion: would be nice if someone can take the points that Adam Smith and Karl Marx were observing about human nature, update with John Nash game theory, and make a new economic system that doesn't turn humans into Spherical Socio-Economic Units in a vacuum like Capitalism and Communism both ended up doing: neither money nor community are the be-all and end-all of human motivation).
Blaming capitalism when the reason this all blew up was practically the biggest socialistic experiment is ridiculous.
It really is the death of capitalism, but not because of capitalism but because the single point of failure of central banks and central control are enough to bring this whole thing down.
This is actually infuriating seeing a bank trying to deflect the blame. This is the results of decades of banks getting breastfed by the Fed, and then the Fed finally exploding it all in COVID printing and failing to raise interest rates for a whole year of rising inflation with nonsense of "transitory inflation".
So much lies. If there should be social unrest, it's at the Fed and the banks.
As long as we’re discussing ridiculous things like price controls, let’s perhaps discuss consumption controls where consumers can only be allowed to purchase certain things at specified amounts and frequencies. In a society that eventually transitions entirely to digital payments, this kind of control should be easy to implement through a centralized authority.
If the price of staples like bread, eggs, milk, etc rise so much that I can't afford to feed my family for the week, it's such a relief to know I'm not obligated to do so!
I'll let them know that from now on, we'll just be eating Lack Of Obligation, which will, I'm sure, be just as tasty and filling as the food we used to be able to buy!
Truly, you have opened my eyes. Now it is clear to me that it is right and good that the Freedom of the wealthiest people in our society to increase their dollar-denominated high scores be deemed more important than the ability of the poorest among us to feed, clothe, and shelter themselves.
Man, that's such a relief.
But if I was to buy mostly branded food made by Nestle & friends, I'd pay 30+% more easily.
People will pay upwards of $20-$25 to have one meal made and delivered to their home, when really the total cost of the meal is probably a couple bucks.
And then people insist on buying expensive processed crap, when the same thing could be had for far less with just some simple ingredients.
People waste money daily on expensive coffees and sugared waters, when all this probably costs mere pennies to make.
Gross, but people buy it. And often happily!
I wish I had a witty comeback but I'm honestly just stunned...
It could solve a whole bunch of other problems too.
But you have to consider that no economy exists divorced from politics. So, in the same vein, if too many people are having too rough of a time… your political messaging will get undercut with populist appeals in the political messaging economy.
So, there’s a balance of concerns to be struck.