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Comment by jb12 | Hacker News Reader

What if we're thinking about inflation all right?

Huge stimulus programs over the past five years absolutely overcooked the economy and fueled high inflation. Fiscal policy, hands bound by the rise of populism, is doing nothing to help, while central banks, free from the constraints of worrying about electability, are using the only tool they have to try stop the bleeding.

The solution, of course, is to tighten fiscal policy in the way of reducing spending or increasing taxes. But that's political suicide.

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This perspective is naive. We need to look back to the seventies, at minimum, to really grok what’s happening in American economies today. I’d say WW1 is a better starting point but getting people to read a few dozen books is hard enough, a few hundred nigh impossible. Fiscal policy is useless without a legislature that legislates. To be clear, the inability of Congress to legislate is akin to pouring powdered magnesium on the fires in America’s interconnected economies. From rampant monopolization, ignored externalities, irrational tax policies, regulatory capture, unpunished white collar criminals roaming free in polite society, war on drugs, systemic racism, to more benign things like the breakdown of separation between church and state. These deeply rooted and unaddressed issues affect inflation in insidious ways that are impossible for the fed to address. So if the fed can’t and Congress won’t, why are we still talking about inflation like anyone with power actually wants to solve it? Simple truth of the matter is everyone empowered is actually welcoming the inflation. We can bicker about why but honestly thinking that congress is interested in controlling it is laughable. We have a functional playbook for inflation but it’s too extreme for the current right of center administration and power centers in congress to even consider or mention.

The plan being the beautiful de-leveraging Ray Dalio talks about in his books "Big Debt Crises".

Some of us actually do read and educate ourselves despite increasingly hostile literature that strays from facts into non-credible opinion.

Credibility has never been more important, and books that have stood the test of time are often more credible than 90% of the garbage out there.

It's less clear than that - because this is a supply side issue.

Inflation is prices going up. Prices go up when somebody selling something realises there are insufficient competitors and they can mark up pretty much as they please and still clear their inventory.

The solution is more competitors, which requires fiscal policy to move people from producing for consumption to producing for investment. Because the market won't do it on its own. It's too busy making a killing.

The problem the West has, that the Chinese don't have, is we have developed a visceral dislike of politically selected investment. Those extracting rents from supply constrained markets love that of course.

The price of the belief that investment can only be private is that the Chinese will ultimately win out.

Plus consolidation/monopolies/duopolies/etc means the initial investment has to be significantly higher to be competitive in the market. Or it's just impossible to enter the market in the first place for the same reason.

Inflation is the artificial increase of the money supply; The government spends the new money with corporations, *at the original value*, using up resources. Those resources are now missing and will need to be replaced in the market; This demand now increases the price of those resources, and everyone else who doesn't get freshly printed digital money shoved up their butt by the government, now has to pay those *raised prices* to overcome the unnatural draw on the economy you get from using an inflationary fiat currency system.

> The solution is more competitors, which requires fiscal policy to move people from producing for consumption to producing for investment.

This generally sounds reasonable.

It implies, that there are some (unnecessary) bottlenecks somewhere in the production chain of highly requested goods that can be alleviated by shifting workforce and capital from somewhere else, where there's overproduction or superfluous capacity to where the bottlenecks are. The allocation of resources isn't optimal. Right?

So which are these obvious misallocations of resources/workforce that ought to be corrected by suitable fiscal policy in your opinion?

Inflation is happening because corporations are realizing that they can just keep raising prices and people will just... keep buying things. Rinse and repeat.

Record corporate profits are the key indicator here.

And why do people have the capacity to just "keep buying things"?

They don't, they're putting it on their credit cards: https://www.cbsnews.com/news/credit-card-debt-total-us-data-...

Because we keep printing money, cycle and repeat, ad nauseam

Credit?

https://www.lendingtree.com/credit-cards/credit-card-debt-st...

Credit availability is largely a function of federal reserve policy.

Not at all. Credit availability is a function of creditworthiness of borrowers, which is largely a function of available collateral. All the Fed does is change the price.

If I get charged more interest, I simply charge more in wages/profit to cover it. Which I can do because there is a tight labour market/product market.

Saving less / taking money out of savings, more credit card debt (https://www.lendingtree.com/credit-cards/credit-card-debt-st...), etc.

Some things, people just have to buy. Can't stop buying food, paying rent, paying for your car, etc.

Rent, house prices, healthcare have skyrocketed way above inflation last few decades, people can't not buy these things. College prices too, if you're middle class you can't not buy this either.

American economy has been putting the squeeze on these things for decades. Now we're going even lower on Maslow's hierarchy to food. Americans will keep paying though, there is no political energy or power in the population anymore.

Its because politician's have allowed the methods for receiving signals from the people they're supposed to be representating to be jammed.

Look at social media, if there's a narrative that's unflattering someone will create a large number of bots and shout it down in a way that distorts reflected appraisal signals. You see the same on here with anything that mentions certain keywords like China, central planning, socialism, etc.

Representatives already spend most of their time beholden to their donors after passing through the money filter, they may have sworn an oath but the most common form of incompetency is doing nothing, and worse if they're hopelessly corrupt.

Many don't. In the UK at least, retail volume is down but retail value has increased.

https://www.ons.gov.uk/businessindustryandtrade/retailindust...

Why wouldn't other, competing corporations just... not raise prices and increase their market share?

Because they're all making record profits by all raising prices. Why stop the gravy train?

To make more money, of course. Increasing your sales from 12% of the market to 20% of the market by offering a burger (or whatever) for $4 of pure profit instead of competitor's $6 doesn't stop the gravy train.

Only in idealized markets and even there where consumer demand is elastic. For inelastic products industries raising their prices in unison can all see greater profits because the changes in demand are outweighed by the increase in profits. So much of what we learn of markets are idealized games to make sense of extremely complex emergent systems made of people.

Food is inelastic, but any one food item isn't. People can cut back on meat in difficult economic conditions, and they do.

So, what is on one hand necessary and inelastic can also be a luxury.

Even things called 'staples' are flexible, you won't die of malnutrition if you don't eat eggs.

Within the span of a few dollars for many items people will often eat the difference for familiarity and out of habit. I don't know about you but I rarely sit and comparison shop between similar options at the store I grab the thing I'm used to and expect to get because that's the habit and lowest friction.

> Within the span of a few dollars for many items people will often eat the difference for familiarity and out of habit.

Which is exactly my point: either a rival corporation would be able to get market share via undercutting, or price increases are not actually that sensitive to consumer to begin with.

I actually think it’s the opposite—if you notice your usual purchase suddenly goes up 20% it’s very noticeable because you are always buying it. It may cause you to buy an alternative.

In large part because we've been sitting on our hands with regard to real antitrust action for the better part of the last 40 years.

This lack of real choice is hidden behind a plethora of brands all owned by the same large corporations.

And it turns out when there are like 4 large corporations that are responsible for almost everything produced in a market it's really easy to do de facto price fixing (in the sense that they [usually] aren't officially talking to each other but have unspoken ongoing gentleman's agreements) allowing all parties to get a nice share of the price gouging with no party triggering a race to the bottom.

Can you bring up a specific example of such a consolidated market for a particular commodity where more than 50% are dominated by the same conglomerate, please?

Which orifice did you pull the 50% strawman out of?

If you're going to ignore the obvious problems with massive consolidation in areas like supermarket chains and virtually everything sold in those chains or the massive problems with consolidated telecomm/ISP companies and the de facto regional monopolies they carve up then I don't think you are arguing in good faith.

Feminine hygiene products.

Kimberly-Clark, Proctor & Gamble, Edgewell, and Energizer comprise like 90% of the pads and tampons you'll find on the shelves in an American grocery or discount store.

The largest shareholders of all of the above are the same: Vanguard, BlackRock, and State Street. Combined, they make up ~25% ownership of all of them.

Alternatively: firearms

For a while, Cerberus Capital Management owned approximately a majority of US firearms companies by production, including: Remington, Barnes Bullets, Bushmaster, DPMS, Advanced Armament, Marlin Firearms, H & R Firearms, Para USA, The Parker Gun, Dakota Arms, Tapco, and Storm Lake Barrels. All of the above were acquired by Cerberus from 2006-2009.

All of the above were folded into "Freedom Group". That was later rebranded as "Remington Outdoor Company", then sold piecemeal three years later (in 2020).

> The largest shareholders of all of the above are the same: Vanguard, BlackRock, and State Street. Combined, they make up ~25% ownership of all of them.

As a CEO, why would sharing 25% of shareholders with another corporation stop you from exploiting their weakness, increasing your market share, increasing your stock price and in the end, increasing your bonus? You're a publicly traded corporation, your contract is public, your bonus mechanic is public, these 25% don't have any other means of control over you.

Vanguard is not an active shareholder setting corporate direction.

Having them as a shareholder in common just means they are in the same index and has no impact on potential collusion.

Did you mean lower prices to increase their market share?

It's a great question. Usually that competition is what I would expect, but I wonder if there are really the proper incentives in place for competing corporations to compete. I've speculated about this a few times in the past, but corporations ultimately are accountable to their shareholders. And it's increasingly common for their shareholders to also own shares of all their competitors, which is the whole idea of buying an index.

It ends up being a fallacy of composition in a system that is supply constrained.

What keeps prices under control in any market is that somebody with supply capacity loses out and doesn't use that supply capacity - because the price achievable doesn't make it worth using that supply capacity.

That's the issue we have at present. There is insufficient spare supply capacity available to be brought online if prices go up. The solution is shifting consumption to investment, but at present the short term view is seen as more lucrative than the long term one.

>Record corporate profits are the key indicator here.

We have record GDP. We also have record amounts of M2. If there were NOT record amounts of profit i'd be considered. Looking at absolute profit not charted against other metrics is embarrassingly stupid. Maybe profits are driving inflation to some degree, but saying 'record corporate profits are a key indicator' is just wrong.

"Record corporate profits are the key indicator here."

I am open minded to the notion that corporate profits indicate the direction of "pain flows" in this economy dominated by inflation concerns.

The first question I would ask is: are current corporate profits breaking records in real terms, or just nominal terms ?

I don't know the answer to that.

It would be disappointing, intellectually, to learn that corporate profits are simply up in absolute, nominal dollars ...

... but I've been disappointed before.

I would argue that this in turn is driven by a complete failure to enforce any of the anti-trust laws that are on the books.

It's even possible for inflation to occur when people don't keep buying things, because inflation is measured in terms of price alone, not transaction volume, and not revenue (price x volume).

Corporations have always known they can raise prices. What's new is that people can pay them.

What stopped corporations from realizing this before covid hit?

It’s like a triggered phase change from a super heated or cooled state. Something triggers the start and the state shifts very quickly. In this case the Covid supply shock was the seed.

Things were in steady state. The actual momentary supply and demand shock caused prices to naturally inflate. And when the supply returned they noted that prices didn't go down. Now they were free to test more increases.

Corporations are people, they wait for either the leading or trailing edge and then pivot. Before we had demand-pull inflation due to constrained supply chains, we are now seeing cost-push inflation, and its not about the pandemic spending as much as the Fed left the money printer on for the past 10 years under QE.

Chicken's come home to roost, and the pandemic happened after the Velocity of Money for the M2 had already dropped to nothing. Giving money to people and paying for their education was a last ditch effort after bank lending stopped in Oct/Nov 2019. The charts are all there for those that watch them.

To be fair, although definitely some corporations are doing this, others are adapting to market circumstances caused by a few actors.

For example, if you're a retailer selling pretty much anything now, your costs are up significantly across various different streams: your rent is up, your utilities bills are up, your logistics costs are up, the wholesale price of the products you stock is up... you have no choice but to increase your prices to stay afloat. That drives a spiral because now not only are your prices higher, you also have to raise your staff's wages because they can no longer afford to buy the products you sell, pushing you to increase your prices, and so on.

Now, you are a contributor to inflation through no fault of your own, despite the key increases in cost coming from, ultimately, rising fuel costs impacting across the whole supply chain.

I agree that record corporate profits are a key indicator (although probably this should be considered in context of inflation also, rather than just the raw dollar amounts).

The thing that usually keeps firms from raising prices is that customers don’t have money to pay the higher prices.

What I think is novel now is that there’s a lot more cash available to pay these higher prices.

Record profits are the result, not the cause.

Household debt continues to rise.

> What I think is novel now...

Not novel. Just the return and normalization of usury.

Here's a brief recap, beginning with South Dakota's Gov. Bill Janklow dismantling of consumer protections from financial predators in the late '70s:

A Short History of Financial Deregulation in the United States [2009] https://www.cepr.net/documents/publications/dereg-timeline-2...

(Just the first useful hit I found. There are many, many such analyses. The worsening financialization of household debt has continued almost uninterrupted.)

Elsethread, u/Red_Leaves_Flyy notes some of the additional current co-factors. https://news.ycombinator.com/item?id=36237547

Between PPP 'loans', 0% interest rates giving way to slumlords..er..'investors', and other stimuli, I feel like I'm the only sucker who didn't get rich.

Perhaps one of these days I'll ignore personal morals and join the party, since there doesn't really seem to be a visible downside :(.

The thing about the economic cycle is that it's a cycle. This too shall pass.

Some cycles take a couple generations to pass. We can't just say "this too shall pass".

Which economic cycles have lasted that long? They are typically in the 5-15 year range.

You don't know that.

The only constant is change.

Collapse is also a change lol.

Take what you can before it collapses.

Watch the Anna Delvey documentary when you're bored sometime and tell me you don't low-key respect that hustle. Tell me you wouldn't have strongly considered nullifying that jury if you were on it.

Then compare that to what Elizabeth Holmes did, and tell me you don't wish she got a much harsher sentence.

There's a lesson there. To join the party, don't ignore your personal morals. Just bend them to grift the right people.

Inflation is complicated.

For one thing, if wages increased as fast as prices, it would actually be a good thing. It would make it easier to make your fixed-rate mortgage payment. It would allow increased construction to bring down real housing prices without bringing down nominal housing prices and causing millions to go underwater. It would devalue your debts, and the national debt.

But a lot of influential people don't want those things. Banks would make less money in real terms because people would have less real debt. Housing speculators wouldn't get their returns. And wages are sticky, so once they go up, it's hard to get people to take a pay cut even after the supply chain issues that were contributing to higher prices abate.

So now the policy is to suppress "inflation" -- which is to say, nominal wage growth.

So you didn’t read the article?

I did read the article. It paints Weber as being correct just because she is a victim.

Pretty sure it paints her as correct because … she looks to have been demonstrably correct.

Is she? No widespread price controls have been implemented in the U.S., yet inflation is slowing due to the effect of contractionary monetary policy. Price floors on grains have been implemented in some Easter European countries, but that's mainly a populist measure to protect against cheap Ukrainian imports.

1) She didn’t argue contracting monetary policy was ineffective. 2) You’re going to talk about the European grain market (not in the article) but skip the European natural gas market (which was in the article)?

What specific prediction did she make that was a) correct and b) different from mainstream economics?

That you can leverage price controls without descending the entire system into chaos and that this approach can be as effective as, and less destructive to the economy than, raising interest rates

During the long period of unusually low rates and consumer-price inflation, we had massive asset inflation. We also had unusually low unemployment and rather sticky wages. The populism was driven (at least partly) by this state; assets going up while prices and wages staying flat leads to a "rich get richer" which pisses off everybody else.

Remember 20 years ago when the war against terror was just getting started and we were worried about the US debt level at $4 trillion? Now we're over six.

It costs 13% of all federal spending just to keep the plates spinning. I don't know if there's a way to dig out of those kinds of figures.

It would be political suicide to pass an "inflation reduction act" with like 500 billion in new taxes and increased enforcement? I guess we'll see next year in November...

> Huge stimulus programs over the past five years absolutely overcooked the economy and fueled high inflation.

The primary driver of inflation is record-breaking corporate profits, not stimulii or wages.

https://www.youtube.com/watch?v=Zi4KMCQuQYE

The only way for the record profits was an increase in funds to spend at the corporations. There is no magic behind this. People had more money to chase fewer goods and companies were able to raise their prices.

> People had more money

Where are you getting this information? Raises are not keeping up with inflation. A few thousand in stimulus dollars years ago is not driving anything. PPP money didn't increase wages.

Feel free to downvote this because it is a very simple observation and not based on deep academic study. I really hate wages have been so stagnant and have not kept up with inflation. I feel like I've been treading water the last 10 years of my adult life despite making above minimum wage. But I also can't help but notice a lot of people used to say "$15 dollars per hour is going to equal $15 dollar hamburgers" and now where I live $15 dollars per hour has become a pretty common starting wage and now everything is more than usual inflated.

Individuals and businesses received direct payments in the form of stimulus checks. I have to think also money got into people’s hands by lending as the banks are how the new money gets into circulation. That’s my layperson’s understanding of a very complex system.

> Individuals

A few thousand dollars 2-3 years ago?

> Businesses

Payments that, at most, kept wages the same?

-----------------

People need to stop using "people are getting free money and that's raising inflation" excuse. Prices are rising and people are going into their savings or credit to keep spending. That's it.

Yeah the business money in theory was just to keep people on payroll

It's not solely due to increase in funds (I assume you mean stimulus?) I'm fairly sure corporations are getting money that would've went to other things (savings, for example).

If so, how do said corporations get access to the the money that would have previously gone to savings?

More plausible to me is the idea that stimulus — printing new money by fiat — resulted in more cash in circulation. Corporations are like organisms that have evolved to capture and eat cash. They fed on the surplus cash, and their waistlines show it afterwards.

Meanwhile those of us with savings accounts pay the price when inflation reduces the buying power of the cash we had diligently set aside for future use.

Well usually I save my surplus cash. But if stuff costs more, I now save less implicitly. That is corporations getting access to my savings by raising prices. They aren't getting any stimulus money from me here because I never got any.

> But if stuff costs more, I now save less implicitly.

Or you could just change your spending habits.

I could and am in a macro sense. But when things I normally buy are a little more expensive and I'm gonna buy them anyways (a grocery trip is a good example), I don't especially notice the haircut.

I guess you can blame me for not micromanaging every dollar I spend? But if I'm sitting in a drive thru grabbing a burger and fries and notice it's $5 more than it used to be, I'm probably still gonna buy the burger and fries. And I probably will still go grab one occasionally when I want it. Because saving $5 every so often isn't gonna really affect an activity that makes up a microscopic amount of my expenses (I've got fast food including coffee at 2.5% last I reviewed my data.)

But regardless I think what I'm describing is a real bit of human behavior at scale - and isn't that just economics at the end of the day?

I don't know. Over the years, I've stopped drinking alcohol, eating fast food and cut down on pointless spending. Sure, grocery shopping is more expensive, so I also stopped buying certain items that also affect my health and the planet... most meat. I changed my spending habits to focus on becoming healthier and happier as I age. I look at my dad who, like his father, refused to change anything and decided to break the cycle.

$5 is $5... every penny counts.

I've been learning the same thing. I did a big review of my finances (downloads CSVs and crunched them) and found like $4000 of easy money .. across a bunch of in-a-vacuum "small" expenses I wouldn't balk at. That's a new water heater and then some!

I'm not sure people outright have more money. I think a big part of it is that the average person has access to a lot of credit.

Generally the way I suspect it goes is

1. Draw from savings to buy essential goods.

2. Slowly load whatever you can't afford on your credit cards.

3. Get new credit cards before you start missing payments.

4. Load more on your cards.

5. Have nowhere else to go so start taking payday loans.

6. Run out of money.

Which is in stark contrast to pre-2000s recessions where access to credit was far more limited.

As it is currently, if you've had a credit card, it is incredibly easy to get more and you can get an incredibly large amount of accessible credit. The average american has around 30k USD in available credit (10k for 18-22 and 20k for 23-38 but 30k overall) with only around 5k or less of that utilized on average. That's a lot of money that companies can draw on before consumers pockets are truly empty.

https://www.bankrate.com/finance/credit-cards/what-is-the-av...

Record breaking profits are caused by, not the cause of, inflation as goods and services get more expensive while the cost of labour takes time to catch up. This is well known economic theory.

Did corporations suddenly become greedy in 2021? No, they were always so.

Agreed. I keep hearing about these record corporate profits, and I always ask "are they record profits after being adjusted for inflation?" I would bet that some of them are, but these companies want to claim record profits (willfully ignoring inflation), so their stocks go up.

I'm not sure about the exact numbers on this one, but cutting the corporate tax rate in half is certainly a big stimulus that goes straight into the bottom line.

Inflation makes numbers go up, which tends to drive 'record' nominal (pre-inflation) profits. Even your video demonstrates this. Look at the first example he shows, at exactly 2:30. Procter and Gamble's operating margin started plummeting in the face of inflation and even after they raised prices, their margin remained well below what it was before inflation. This is because their costs not only increased, but increased more than their own relative increase in prices.

You can see the details of P&G's financial specs here [1]. Everything has been relatively flat to declining and those are in nominal terms, or in other words - before inflation is factored in. After inflation, they're taking a pretty serious beating.

---

Inflation is most easily understood by considering that money, in our current system, doesn't really have any meaning or intrinsic value. It's just numbers, and so the price of everything is simply set relative to the amount of money in circulation, and more precisely by the monetary velocity [2] or how often money is changing hands. If everybody was given a trillion dollars, it doesn't mean everybody's suddenly rich - it just means suddenly a Big Mac's going to cost tens of millions of dollars, and a new TV's going to set you back billions. You end up with the exact same relative values for things, but the values are bigger - because there's more money in circulation.

[1] - https://www.macrotrends.net/stocks/charts/PG/procter-gamble/...

[2] - https://en.wikipedia.org/wiki/Velocity_of_money

Why did corporations change once covid hit?

Inflation is the epitome of the Dunning-Kruger effect. You let a young Republican into one Econ 101 class and suddenly he thinks he knows more than actual economists. All of whom will tell you no one fully understands inflation. You don't know what you don't know. Economics is more of an ideology than a science anyway.

Who's to say inflation is even a bad thing, anyway? Argentina's had "hyperinflation" over and over again, and it's not exactly Weimar Germany. All the debt in the economy can never be repaid. Debt vastly exceeds the money supply. What is money, anyway? It's just another form of debt. Dollars and treasury bills are completely interchangeable. In a world that runs on debt, devaluing debt (aka inflation) is a good thing for everyone except the nested-yacht rich (up to a point).

These paltry stimulus programs largely went to pad oligarchs' bank accounts through PPP fraud. This doesn't contribute to prices at the grocery store, at all. It did jack up the price of crypto ponzi schemes, and made a bird app worth a meme number for a brief moment in time. That's about it. Giving money to the rich does not stimulate the economy whatsoever. They just hoard it and blow it on nonsense until it vanishes into thin air, from whence it came. They can't spend all that money on goods and services in ten lifetimes.

Supply shocks, trade wars, excess corporate profits, and a staggering lack of antitrust enforcement are playing far more of a role with inflation than those $1200 checks.

Lastly, raising taxes on oligarchs is pretty much the most popular position in the country, according to polling. Raising taxes is not political suicide at all, provided they're the right kind of taxes. Polls also repeatedly find that Bernie Sanders is the most popular politician in the country. Unfortunately, public opinion has been scientifically proven to have no effect on policy in the USA. This is not a democracy. It's a fascist police state.

Thanks, after a few paragraphs of blabla I went straight to the comments to look for a TL;DR.

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