So are they saying that the free market is basically not a thing anymore because of covid, and no company wants to get an edge over its competitors by undercutting on price despite having record margins?
* Rent (they're all high; and can't afford to buy anywhere near where I work)
* Food (prices are pretty much the same everywhere)
* Internet (Cable's the only modern-speed option where I currently rent)
* Energy / Gas - either utilities or again, the same everywhere
I think most everyone else is in the same boat. I can scale down some of these a little bit, but they're all fairly __inelastic__. I can't stop eating. I need all of these for life and work.
Want to tame inflation? Tax the hell out of profits above X%!!! Someone's making money on this.
The thought that food providers are colluding to raise prices is absurd and should serve as a reductio ad absurdum in these arguments, not a fundamental explanation for "greedflation".
https://www.producer.com/opinion/u-s-government-strikes-out-...
As USA lives in post law age it only means that relevant corporations carpet bombed regulator with lawyers, paid politicians, lobbyists, job offers for key bureaucrats(after they retire/leave) to make it go away. And to prosecute corporation regulator needs money, money they have is finite so they need to choose their fights. And they need don't know if around the corner some corporation doesn't produce fentanyl out of baby skulls. On top of that fixing plight of chicken producers won't translate into them spending money on lobbyists, hiring retired bureaucrats or financing PACs, everything corporations that gain from it will definitely do.
I can't believe this is true. Either you're shopping for food at a subsistence level, in which case you know exactly what you're missing and how much easier it would be if you could afford a bit more, or you indulge yourself a bit and you're wilfully ignoring that you could pay less.
If you tax land with higher taxes for lower density, then, yes, you’ll radically increase food costs.
This would encourage property density in high value locations like inner cities but wouldn't enforce it.
In terms of farmland it would just mean that farmers rent the land from the government rather than, say, blackrock or bill gates (two of the biggest owners of farmland right now).
This would not affect food prices by much it would just mean that when you buy food from those farms, instead of ~15% of the price flowing into bill gates' pocket it would flow into government coffers. Bad luck Bill Gates. Bad luck Blackrock.
I wasn’t responding to an LVT suggestion, but a suggestion of taxes that would be based on density of use and go up for lower density. I quoted the suggestion in my response. LVT is a whole different thing.
Demand for housing would remain the same.
Short term it would create a strong incentive not to hoard property. If it's not rented out it is losing money. Landlords would scramble to rent them out - driving up supply.
Medium term rents would decrease, too. A land tax would create a powerful incentive to yield low density housing in high value locations to be redeveloped into high density housing - increasing supply.
What would also go down is property prices. Significantly.
It would kill all political will to fight redevelopment too. There would be no point fighting to declare a launderette historic to prevent it from being turned into apartments. Desperation for local housing wouldnt get directly turned into home equity and higher rents like it does now, it would just jack up your tax bill.
The idea that you can tax an input more and reduce prices is ridiculous on its face.
> Demand for housing would remain the same.
Also unlikely. Basically any change in local conditions will impact housing demand one way or another. The global number of people needing housing may not change, but that’s not housing demand (globally or locally).
> Short term it would create a strong incentive not to hoard property. If it's not rented out it is losing money.
Property tax already does that, and most places have properry taxes. Also, the fact that property has non-tax maintenance costs does that. “Hoarding real property” is largely a theoretical concern.
> Landlords would scramble to rent them out - driving up supply.
Except they already do that, but higher taxes would raise the break-even price.
> Medium term rents would decrease, too. A land tax would create a powerful incentive to yield low density housing in high value locations to be redeveloped into high density housing - increasing supply.
No, it wouldn’t: housing demand already does it, the constraint is regulatory (zoning control) not the desire to build. Higher taxes on lans drive up costs without dealing with the constraint. Deal with the constraint and you’ll see development because more housing on the same land is more money for the landlord even with 0 taxes. All more taxes do is raise the break-even rent.
> What would also go down is property prices.
Nominally, but the cost of ownership would stay the same or be higher, some of it moving from purchase price to taxes.
> It would kill all political will to fight redevelopment too.
No, the political will to kill redevelopment would just also be political will to kill the taxes.
> There would be no point fighting to declare a launderette historic to prevent it from being turned into apartments.
There’s no financial case for that now, and higher land taxes wouldn’t erase nonfinancial political motives.
Of course. It would absolutely reduce the price of property.
Just not rents.
>Basically any change in local conditions will impact housing demand
Hand waving.
>Property tax already does that, and most places have properry taxes.
When high enough property taxes do inhibit hoarding, yeah. They approximate a less desirable form of land value tax.
In my city property taxes are capped at an absurdly low level and property is hoarded like bitcoin while people die on the street. Tax policy at work.
>Except they already do that, but higher taxes would raise the break-even price.
Remember when you said?
"The idea that you can tax an input more and reduce prices is ridiculous on its face."
You were absolutely correct. PROPERTY prices would decline to compensate for the higher taxes.
That would in turn keep the breakeven price more or less the same for developers.
It would also reduce the capital intensity of property development since the cost of the land wouldn't be front loaded.
Dont get me wrong. This would turn property owners into renters of a kind (renting land from society) and this would make a lot of property owners furious - and probably violent. It's not a panacea - it's just a way to euthanize one kind of economic parasite.
The lower mortgage payments on the cheaper property would be offset by higher tax payments.
Typically inelastic goods mean that prices can increase because demand will not drop as prices go up.
There are two markets with two types of consumer here:
1) The market for a roof over your head. This is highly (but not completely) inelastic. People need somewhere to live.
2) The market for property as an investment. Higher taxes on an asset disincentivizes ownership of that asset. This is elastic because there are tons of other asset classes you can pour surplus wealth into.
Effectively a land value tax already exists for renters - in demand locations have higher rents. The "tax receipts" just dont flow into government coffers.
Depending on how high and fast it was raised it would likely lead to a steady stream of landlords defaulting on their mortgages and leaving the banks holding the property.
This is actually very easy to see in countries with no 30 year mortgages, because landlords have to refix their mortgage rates every 1-5 years. This means you can see regular landlord cost changes as interest rates fluctuate, as well as the impact on rents.
The impact on rents is essentially 0 as landlord costs change; instead, rents follow tenant incomes, because landlords are able to charge more as long as tenant incomes increase.
I've got plenty of data from New Zealand if you're interested, but I'm sure it's the same everywhere there is supply-constrained housing.
How do you explain rising rents?
Tenants have several fixed costs to pay: taxes, food, rent, and transportation being the main ones. If their incomes go up, rent typically consumes the increase, because housing is a fairly uncompetitive market.
As much as the market permits, as the rental market also competes with actually just buying the house.
and the companies do not want to compete: most modern large companies only exist as a _vehicle for investment_, and as such compete for shareholders, not consumers. Due to this, short-termism dominates: average CEO stays 4 years at a given company, and performance of the company after they leave is largely uncorrelated with their carreer success, while share prices during tenure actually does.
So they'll suck the blood from us, crash everything, and get a raise when politicians ask them very nicely to try and fix it. And while share prices will go down on the S&P, billionaires will gte richer, and hedges will make bank...
I guess my point is that markets continually prove to not be rational. Maybe a philosopher hundreds of years ago imagined they could be, but that's not how things are shaking out.
I think if you ask anything vs “new law passed by Congress” I’m going with anything. So at least the invisible hands will eventually solve this problem by raising cleaner pay until someone is willing to commute 60 minutes (note that was my commute in a larger metro area on programmer pay) or cleaners can afford closer.
When one job salary doesn't cover living costs, you are more likely forced to have two or three, not a raise in your current one. It also solves problem of unfilled jobs. Because there are cases when job is only economically feasible if performed in urban area with high population density, so you can't really change your location.
Because that's where you have your social connections. Friends, family. That's where your home is, your parents lived there, your grandparents lived there, you grew up there. And you hold out for better times. And that's why you can be exploited like that.
That's the "not rational" part. The humans participating in the market are not "rational", for some odd definition of the word. But if you think through motivations, they are rational, if you put value in the reasons why people do this kind of job in this kind of situation.
Workers are leaving because they can't afford it, not because they want to stratify their families and leave their homes.
For those thinking this is the market successfully working: has the market successfully worked in the Bay Area? How does SF look right now?
Wages are where the two parties met. It's high enough so the seller of the good (employee) is ok with selling and it's low enough so the buyer of the good (employer) is ok with buying. As long as they do business with each other, they are apparently both deciding, rationally, that this is an acceptable deal. Better than the alternative.
> Workers are leaving because they can't afford it, not because they want to stratify their families and leave their homes.
Great that they are leaving! They should be leaving! Cause then, and only then, will businesses be driven closer to raising wages since the sweet spot in the above equilibrium moves upwards.
> For those thinking this is the market successfully working: has the market successfully worked in the Bay Area? How does SF look right now?
Well in the Bay Area, the market is highly distorted. Lots of NIMBY zoning rules preventing high density housing being built. People sitting on detached homes because they can't afford to move. This heavily distorts housing costs which then impacts salaries since all those tech workers need to live somewhere. Big tech and VC-funded not-as-big tech is floating in money, so can afford to push salaries/compensation higher and higher. It's the market, but it's not pretty and it's heavily distorted.
It's not the fall that kills you, it's the sudden stop at the end. I would hesitate before saying anything categorical.
You can't accuse corporate CEOs of short-term thinking and then use infrastructure and "societal safety nets" as the measurements -- CEOs are responsible for the success of their company, not of the well-being of an entire society, that's the government's job.
The average person in this country already can't afford on two incomes what the last generation could afford on one.
How sustainable is this?
And regarding efficient and just taxes: https://en.m.wikipedia.org/wiki/Land_value_tax and https://en.m.wikipedia.org/wiki/Georgism
It's amazing how people have figured this out in the 19th and 20th centuries yet we're still arguing with bunk neoliberal economics today.
Well, yes. How else can the rich keep getting richer? And the umpteen million individuals assuming "stocks will return 10% over the long term" in their retirement planning actually manage to retire as they planned?
And as long as the culture wars can be kept burning fairly hot, the line-ups of new movies and video drama compelling, and the web addictive - the poor working masses won't put up too much of a fuss over all that extraction.
NIMBYs and such ensure that more housing can't be built, at scale, in areas with high rents, to have normal supply/demand dynamic.
Food is relatively cheap, if you cook for yourself and don't mind a lot of beans, rice, bread-machine bread, peanut butter, etc. If you want heavily processed or prepared food, or restaurant food...that's an order of magnitude more expensive. And many parts of the food industry are far too consolidated to be competitive.
Etc.
Taxing the hell out of profits sounds great...but in sectors where the real problems are strangulated supply, monopolies, and massive processing in the supply chain - it won't do much good.
And, at least in the area I live in, the barriers to entry for the restaurant biz are pretty minimal. Most restaurants are (at most) local micro-chains, and there's a lot of churn as people try to make a restaurant work...and often fail financially. Want to get into the restaurant biz? With a low-6-figure nest egg, and willingness to wait for some local commercial landlord to have a vacant failed little restaurant on his hands, it's "easy". And the real estate supply is pretty elastic - cities and NIMBYs favor the (often quick & easy) construction of more small retail spaces; likewise converting generic vacant retail spaces into more restaurants.
Vs. if you want to be residential landlord - I'll guess a 7-figure nest egg to buy existing property (limited supply, and buying some does not increase overall supply). If you want to actually expand supply, by building rental housing at scale...you'd better have an 8-figure nest egg, and experienced legal team, and be willing to spend 8+ years (from "ready to do this" to "collect rent checks") fighting your way through the government red tape, NIMBY-land's standing army, and actual construction. With no guarantees of success.
The people already doing so are absolutely fucked.
While potentially still cheaper, those basic staples have typically seen a disproportionately large rise in their price. The price of porridge oats and milk increased by over 30% in the UK between 2022-2023[0]. Own brand plain dried pasta went up by 41% in one, relatively cheap, supermarket[1].
CPI as a whole is at 8.9% but food is at 19.2%[2].
That's not even accounting for the noticeable inflation in the price of the cheapest goods that occurred prior or energy bills more than quadrupling between 2019 and 2023, even before Ukraine they had nearly doubled.
[0] https://www.theguardian.com/business/2023/apr/18/cost-of-bri... [1] https://www.pressandjournal.co.uk/fp/news/5682202/food-price... [2] https://www.ons.gov.uk/economy/inflationandpriceindices/bull...
Seeing as we're now on the topic. Demand may be high where you are but that certainly doesn't hold true in the UK. The statistics show clearly that people are buying less[0] and getting less for it.
Retail volume is down 3.1% on 2022 across the board, there's literally a chart titled "Divergence between retail sales volumes and values"[1] showing how severely people are being squeezed. Figure 4[2] breaks out the same data for food retail specifically.
While certain demographics have been able to somewhat keep up with rising prices, the reality is that some food banks are having to distribute 50% more than they did pre-pandemic[3]. Real disposable income is already well below 2020 levels and expected to erase a decade of "growth" as it nosedives towards that of 2013[4].
[0] https://www.ons.gov.uk/businessindustryandtrade/retailindust...
[1] https://www.ons.gov.uk/chartimage?uri=/businessindustryandtr...
[2] https://www.ons.gov.uk/chartimage?uri=/businessindustryandtr...
[3] https://www.theguardian.com/society/2023/feb/19/record-numbe... depending-on-food-banks
[4] https://obr.uk/docs/dlm_uploads/CCS0822661240-002_SECURE_OBR.... page 18 (page 22 of the pdf).
It's baffling. Rents were down during the pandemic but they've now rocketed up 50-100% in some areas.
Internet is regulated through phone and cable so profit is hidden into costs and whatnot.
Same for energy.
Rent is hard to determine profit because of the way expenses can be assigned and so much is private landlord direct to renters.
The free market is supposed to work through scale and optimization; scale is still a relevant force, but mostly serves market consolidation. Optimization is not something that can be frequently innovated on. So everyone has pretty much the same cost basis in long established industries like food.
There is simply no incentive for these corporations to start a price war; they all know starting one will only result in a very brief competitive advantage until everyone returns to baseline profits.
Funnily enough, a lot of recent reductions in cost basis in "innovative" startups is not done through optimization; it is done through VC speculating on their competitor finding a more permanent place in a (supposedly) new market after consolidation and prices adjust back to reality. An example I can come up with of this is food delivery services in Germany: For a while, several providers were undercutting each other in price and service level. Now all of Germany is dominated by Takeaway, and their service level is slightly above "we don't care". We'll see the same in instant grocery delivery in a year or so. Getir seems to be winning that one. Until then, enjoy ridiculously cheap instant grocery delivery, powered by VC funding and extra dirty worker exploitation (only one of those will continue to exist).
Most forms of the efficient market hypothesis have been formally proven incorrect. The remaining ones are harder to disprove but can be tied to other things (ie only true if p=np).
There are literally mountains of evidence that you have to ignore to believe in efficient free markets at this point. The evidence for them has always amounted to "I have a theory, I looked at a market for a while and it was sometimes true. Therefore my theory is proven"
All countervailing evidence is "no true scotsman"'d. No inefficient market is free enough you see.
It’s one of those things that people feel like should be true, but just isn’t.
meanwhile, if you start from the theory that there’s no particular reason for free markets to be efficient, stories like this aren't even news.
However at this point in the arc, companies are losing their ability to push prices. They won't pull them back or anything, but we are seeing reversion to the mean.
That stabilization should be sufficient to see much lower inflation levels moving forward.
Supply may or may not yield inflationary pressure, but a change in supply is just that - a change in supply. Inflation is measured from a change in prices. For instance, a 100% sales tax would be massively inflationary (at least initially) and wouldn't be reflected in supply of currency units.
ETH like BTC prices are just high-beta derivatives of US dollar liquidity in the global financial system. And that's pretty generous, assuming it's not just a rigged mob casino run by a small handful of insiders. It's not really comparable because it's not really a currency. In the sense that nothing is actually priced in ETH or BTC - it's an open loop system. Everything's priced in dollars and converted at the last second to a BTC/ETH price, and then those are usually immediately sold for dollars to pay suppliers, etc. There's at best a negligible closed loop BTC/ETH economy.
Sure, but there are scenarios where this would be profitable and scenarios where it wouldn't be, and we expect the former to occur when there's been an exogenous debasement to the currency. Inflation is measured from a change in prices, but that does not mean that the exogenous factors which rationalize price hikes are not fairly characterized as the cause of inflation - "greed" or "profit seeking" do not have any narrative value here since there's no covariance between these phenomena and actual observed inflation. And no one seriously expects a company to not raise prices when a currency is debased anyways.
Then they can increase prices two, three or four times and because they have inflation as excuse no one will say a bad word against them. On top of that they hold their suppliers by the throat so they will be able to keep surplus of money in their pocket. Hence astronomical revenue they have during "inflation".
One product I've bought for 20 years used to be sold in clear glass bottles. Last year, they replaced it with cheap plastic bottles. Then they reduced the quantity by 20% while keeping the same price.
That's just one example, but practically everything I used to buy has either increased in price, decreased in quality/quantity, or often, both together.
The free market was never a real thing. It's like spherical cows in a vacuum. It describes what you would expect to see given a sufficiently large number of buyers and sellers, with no network effects, with perfect information for buyers and sellers, no players with controlling stake of the market, and over a long enough timespan.
In this case, the fact that most industries have literaly been reduced to one or two players, the powerful force of competition isn't very effective at reducing prices. It might eventually, but because there are so few competing sellers, we'll have to wait a long time.
Covid has nothing to do with it. Market always worked this way. There's really very little reason for a company to lower the prices below what consumers are already willing to pay. When the market is saturated and all customers are accustomed to paying certain level of prices for a given good and you try to lower your prices for that good it won't automatically mean you'll sell more. You might even sell less because people will assume you sell a good of lower quality. It can take decades for the customers to learn while you are leaving profits on the table. Profits that you might have used for marketing to actually get more sales at higher price.
Try to buy a box of crayons in Florence, Italy.
What is this a reference to?
Affluence of customers play a huge role.
Never in history have there been so many market oligopolies; and it coincided with a transition to a global soft money standard as global fiat currencies became increasingly more decoupled from gold.
Before, a dollar could be exchanged for a certain fixed amount of gold; this had clear and objective economic value. Nowadays, money is decoupled from any hard/objective economic value.
Today, banks issue credit proportionally to asset prices which are themselves determined by how much new credit enters the system... A vicious cycle which forces banks to keep loading new generations with more credit at a steadily increasing pace to avoid bursting bubbles.
Because as a consumer you can go somewhere else.
If there is insufficient excess supply capacity we can't do that in aggregate and prices can be hiked with impunity.
Inflation is always, everywhere, a lack of effective competition.
This can't be fixed by forcing companies to lower their prices since they won't be able to supply the demand that exists at a lower price, and attempting to do so anyway via price controls inevitably leads to empty shelves.
Except that housing, at least in America, has dynamics which are nothing like that. And housing is by far the largest living expense for a very large fraction of Americans.
Its possibly that price level could over time effect actual demand (as well), that is, it could convert people who would buy at price $X to people who would only buy at a price lower than $X or not at all, but that’s not what your example is.
(It does, actually, induced demand from availability it observed, anf the reverse from the opposite condition would be logical.)
If you want to think about absolute demand for housing in absence of a price reference, the demand is enormous. If houses cost $0, I would probably demand three or four large ones for myself before getting to the point where I refuse a free house.
Right, that's different than demand. Demand is the function mapping price to quantity demanded (just as supply is the function mapping price to quantity supplied.)
There are things that shift demand, but price changes resulting in a different quantity demanded are not evidence of shifts in demand, just evidence of a normal shape of demand curve (which is not to say that price conditions over time don’t shift actual demand, that’s just a more complicated thing to demonstrate.)
In the context of this discussion I thought it was pretty clear which I was talking about.
>>>For almost all goods, price increases will decrease the amount purchased.
>>Except that housing, at least in America, has dynamics which are nothing like that.
>High(er) housing prices do reduce demand...
Do you have any thoughts on if price impacts the quantity of homes demanded.
That's the problem.
Somebody has to stand the loss, and for that to happen there has to be an expectation that you can't pass on the price shift somewhere in the cycle, which then forces that somebody to reduce the quantity purchased or shift it to an alternative supplier.
I'd say this has little to do with COVID (beyond that it is a random event that decreased then re-increased demand), but the accumulated effect of decades of failing to enforce anti-trust law.
The most propserous times and bigges middle class ended with the Reagan administration, who in 1983, ordered the DOJ, FTC, and SEC to stop enforcing anti-trust laws dating back to the Sherman Act of 1890[0].
This massively destroyed small businesses and concentrated corporate power. E.g., the closer a store was to the Walmart location, the greater the likelihood it would close. Persky and his colleagues found that for every mile closer to the Walmart, 6 percent more stores closed. Close in around the store's location, between 35 and 60 percent of stores closed. [1]
Previously, anti-trust laws were enforced so aggressively that when Buster Brown and Kinney shoe companies wanted to merge in the 1960s the Supreme Court blocked the merger because the combined company would control about 5 percent of the US shoe market. Nike alone today controls around 20 percent of that market.[0]
Obviously, when anti-trust laws stop being enforced and massive corporations gain oligarchic market and pricing power, they can create inflation at will.
This power needs to be rebalanced.
Again, recognize, that the "free market" is ab absolute fiction — there is no such thing. Every market has rules and regulations, explicit and/or tacit. The only question is what are the regulations and who enforces them.
Absent sufficient regulation, the market dynamics will always end up with all power in the hands of a few major players. This is what is happening here. Looks like is is not the FED that can fix it, it is the SEC and DOJ.
[0] https://www.rawstory.com/amp/gop-party-of-business-265994473...
[1] https://www.bloomberg.com/news/articles/2012-09-14/radiating...
Reagan took office in 1981. So you're claiming that the late 70s -- oil embargo, hostages, double-digit inflation and unemployment -- were "the most prosperous times"? Really?
Yes, yes, the economy did take a hit in the 70s before Reagan took office, but it is quite obvious that that inflation was a combination of extrinsic geopolitical influences and Nixon's abandoning the Gold Standard.
Absent a huge anti-working-class / anti-union push, and shutting down most anti-trust enforcement, recovery of the working class would have been a lot faster and would be a lot further ahead.
Instead, as you can see from the chart, it has literally taken 50 years for the working class to just get back to the same level as 1973...
I don't see any argument that large corporate power, especially pricing power, has somehow declined since Reagan stopped enforcing antitrust laws. Since this is a long-term slow effect, we're seeing the cumulative results now. Most of inflation is NOT materials or labor cost increases, it is corporate profits increases. In a reasonably-regulated (e.g., regulatory bodies not captured by large corporations themselves) economy, this would not be possible. but here we are.
[0] https://www.weforum.org/agenda/2019/04/50-years-of-us-wages-...
So before computers kicked off unprecedented productivity increases, and before standardized shipping containers enabled manufacturing to be relocated globally.
But sure, go ahead and blame Ronald Reagan.
I strongly supported (still do) Reagan's vision of the city on the hill, the global champion of democracy, and strengthening of the military to meet those goals and challenges.
But his strong pro-corporate actions (stopping anti-trust enforcement and union busting) also did huge damage to the middle class, the legacy of which is still here. Similarly, undoing the fairness doctrine instead of extending it to cable (which also use public infrastructure) and weakening laws on maximum ownership of media, also lead to the insane polarization of media we have today.
While microcomputers increasing productivity and shipping containers obviously have some influence, productivity still occurs in the context of workers having rules (or not) that support their bargaining position, and shipping containers in the policy of global trade. Reagan certainly damaged the former, and I don't recall him either much exacerbating nor helping prevent the problems of the latter.
Similarly, Obama did some great things, including a major step towards universal healthcare, but he also failed to respond to Russia's invasion of Crimea and actions Syria, both of which directly emboldened Putin to start his current genocidal war on Ukraine. Neither Reagan nor Obama are solely to blame for these serious problems, but they also bear some real responsibility for their major (mis-)steps in the wrong direction.
They have record profits, why disrupt a winning formula?