A profit-price spiral in Germany | Hacker News Reader

A profit-price spiral in Germany

think.ing.com

112 pointsrustoo135 comments

Seems a bit hugged right now...

http://web.archive.org/web/20230612200920/https://think.ing....

Property and construction are the most distorted markets in a half of the world and this article is yet another proof of that. Our society as a whole would actually benefit if state intervention would make property market unattractive for investors by oversupply: government could invest 50-100B€ in creating non-profit construction verticals that will oversaturate market. The next logical step would be to allow some of the constructed apartments to be privatized by tenants at low cost: maybe not by everyone, but only by those who has a socially important job (police, firefighters, healthcare and social workers, teachers) and majority of difficult problems that government has to deal with would go away. Yes, a lot of people who bought expensive properties may forget about any returns, there could be some margin calls and banking system won’t be happy. But this would be a necessary sacrifice for a healthier economy in which money go elsewhere.

There's no reason the government needs to invest in it.

The market will take care of it on its own as long as regulations allow it. The government just has to ensure zoning allows it, height restrictions are relaxed, environmental reviews are sped up, and so forth.

Of course, all those restrictions are there for certain reasons, which is why getting the balance right between those and new construction is so hard.

Edit: Also, the idea of prioritizing housing for "socially important" jobs is backwards. Why single out housing? If we truly value teachers, just pay them more in the first place. That way they can choose whether they want to put it towards a nicer home or fancy summer camps for the kids or something else.

1. Market has already failed. The incentives are simply wrong, maximizing profits instead of maximizing number of people having big enough place to live. 2. Cash is not the only and the most efficient incentive. We need workforce to go to the places where they are needed, not where is the best ratio of rent to income. If you just increase the salary, you will simply redistribute more of the taxpayer money to landlords. If you pay the same amount in property ownership, you create strong incentive to stay in the same place for long.

> The market will take care of it on its own as long as regulations allow it.

Unless there is more profits to be made by colluding, monopolizing, and scheming. In which case market will reward those who monopolizes the hardest.

Which is why we have laws against collusion and consolidation into monopolies.

These aren't reasons to abandon markets, but simply to ensure they're properly managed as they are across the world.

Thank you for explaining why markets can't be self-regulating simply through competition and why they need external regulations.

Sure, my original comment was about getting regulations right. (Nobody suggested markets are inherently self-regulating.)

You obviously have not been around non-profit, government run entities. The waste they create, the inefficiency inherent in such enterprises is terrifying.

Yesterday I looked at a huge box full of perfectly fine laptops and monitors we will scrape because selling them or even giving them away would be inconvenient.

At the same time, I have to pay parts of a business trip out of my own pocket because I chose not to fly but to take the train. The best part: My trip was CHEAPER than flying. But it was out of regulation, so tough luck.

To be honest - and this applies to every such story I've heard - it's exactly the same in large corporations.

Turns out, it's really not about government vs. free market. It's about size. The larger an org is, the more bureaucracy it has and the more stakeholders are involved. Eventually, you get this weird inversion of priorities that seems to defy common sense. But it's all locally rational - a corporation or a government both can trash a shipping container full of brand new computers, because doing it is cheaper than selling them, or than any other alternative, once the (real or perceived) process costs get accounted for. Or, maybe it's globally optimal to sell them, but since all the gains go to organization as a whole, while all the risk (financial, legal, operational) is concentrated on whoever coordinates the sale, no one is suicidal enough to try.

> You obviously have not been around non-profit, government run entities. The waste they create, the inefficiency inherent in such enterprises is terrifying.

I have been wondering recently about the value of a market-based approach has to exceed the waste and inefficiency of government entities, and whether it's always better to have government do things in those cases.

I don't have a lot of data on this yet other than really high level things (e.g., the cost of healthcare in the US being very high compared to other approaches), but it seems likely to me that having a single entity coordinating things is going to be more efficient under most circumstances - even accounting for the waste - once you remove the market challenges.

e.g. I think about this a lot in our local energy market while prices are sky-rocketing and I'm seeing useless ads everywhere. Simply removing the cost of advertising/marketing/CaC would drop prices significantly in many markets. It's regulated out the ass anyway so there is basically no real competition outside of pricing shenanigans and complexity to confuse consumers, so there is very little advantage to it pretending to be a 'market'.

It's just a huge play to enrich shareholders at the expense of citizens and offers very little benefit. A single entity, even if it was very (almost spectacularly) wasteful seems like it would probably be less expensive.

> whether it's always better to have government do things in those cases.

if there's gonna be waste, i don't want my tax dollars to be wasted. I don't care if private dollars are wasted, since it's not me taking the hit.

> if there's gonna be waste, i don't want my tax dollars to be wasted. I don't care if private dollars are wasted, since it's not me taking the hit.

Well, it depends on what it is - if it's a service that you consume, even indirectly, you /are/ taking the hit, because the price you pay will reflect the costs of the company providing the service.

Using the example of energy again - if you're in a place where the energy production is fully privatised, any waste that happens there might impact shareholders more, but you can absolutely bet some of it will be felt by customers.

I have bad news for you: in a for-profit property market with increasing margins your money are effectively wasted, because the higher the prices, the more employees in the public sector pay. To fill the vacancies government has to pay more and more, effectively redistributing your money to landlords and construction industry. Inefficiency of this spending is much higher than that of any state-owned enterprise.

> because the higher the prices, the more employees in the public sector pay

i dont' quite get the rationale for this claim - are you saying that higher property prices somehow increases public sector pay? And why is public sector job vacancy have anything to do with the price of real estate?

According to the recent data of Berlin government, high property prices and scarcity of affordable apartments are one of the reasons for labor shortage in public sector here. In order to fill the vacancies they need to significantly increase the salaries increasing burden for taxpayers. IMO causal link here is pretty obvious: if a teacher cannot afford living in the city, they won’t work in that city as teachers and either find a different job or leave. The same thing is happening everywhere in the world, where teacher or social salaries aren’t high enough.

have you ever been around a for-profit, privately run entity?

Your experience at a big company in those two scenarios will likely be no different.

If SOE wastes 10% of the budget but still delivers on the market where profit margins are over 20%, it will still be more efficient in reaching the goal of affordable and abundant housing than private investors.

The overhead for public Healthcare in my country is 18 to 23%. Ie each time you pay 100 euros, 83 to 77 are paid to Healthcare providers, and the rest is paid to bureaucrats and administrators.

Each 100 euros I give to Swisslife, 65 are going to Healthcare providers.

I don't mean to invalidate your experience, but we ought to be better when talking about inefficiencies. I really find it odd that each time no numbers are provided.

Whereas at a company, the equipment would be destroyed because it checks a box on some asinine security requirement.

Or because it would be inconvenient.

For a larger company, the bureaucracy may be thick enough that even if you'd find a soul brave enough (read: suicidal) to push for the initiative, by the time it's set up and verified to fulfill every relevant rule, bylaw, as well as the law, organizing the sale costed the company more than it stands to profit from it.

What? Only "socially important jobs" could buy the cheaper apartments? What the hell

For prices to go down, it doesn't really matter who gets to live in these apartments, as long as enough demand is taken off the market.

And usually, with few exceptions, socially acceptable jobs are the ones which pay little compared to the effort they require, and also compared to the (non-monetary) value they bring to society. You also want these people in your city because sure it's great that you have tech workers, lawyers and bankers, but who is going to be in the hospitals?

Why not? It makes sense - not every job is equal and some are both important and usually not paid enough.

Society or your local town won't collapse if there's not enough web developers but it may do if it lacks firefighters.

That would be a payment, just not with money, right? So why it's better than just paying this money directly and letting the person decide, rather than introducing an extra step by putting the money into a development and then giving the property instead? The direct payment looks more efficient to me.

If you have a thousand people competing for 700 apartments, prices will adjust until 300 are priced out of the apartments. Giving the 200 of those people with socially recognized jobs enough money to not be priced out any more will still mean that 300 will be priced out, it will just be different people.

In other words, rents will just increase. The solution is to build 300 more apartments, and make them available at the bottom of the market, not the top.

But it's highly unlikely that all 200 of those people would choose to spend that extra money bidding up those apartments, and that's the whole point. Distorting another market as a proxy is worse than directly addressing the compensation issue.

The real estate market is extremely distorted by local governments, through imposing restrictions on where houses can be built, how large they can be, etc. To some degree this makes sense, because you want people to be able to enjoy nature or the city wants to be able to plan which roads to build out, but on the other hand, the focus on SFH urban sprawl plus the prospensity to avoid density increases leads to extreme price increases and losses to quality of life. There is huge demand for walkable high density neighborhoods, but the market cannot meet it because government.

That could be true indeed. I am just arguing in the scenario of "what if we build lots of flats", hah!

I do wonder how did similar scenarios worked out historically?

Speaking about historically, that was implemented in Soviet Union, and I don't think it worked well. Though it certainly gave extra tools to the government to control the people.

Yes? Why is that hard to accept? Jobs with positive externalities are by definition undercompensated.

Why don't you just pay them more? Seems easier than setting up a social credit system.

I would guess because people don't like paying taxes even when the taxes are there to account for the externalities.

This is the Singapore model. Tbf I think it's fine to help most of the people to have places to live in

Instead of trying to define "socially important job", how about...

If government is having trouble hiring people for roles they can either increase the wages paid, or enter into the housing market and include "free housing" as a taxable benefit for those roles. You know, like governments do for the military and other foreign service staff.

However, maybe I'm just salty because I've been waiting for 6+ months (with no eta) for permission from the San Jose City Council to do a renovation.

We cannot rely on the gov as the arbitrator on what is “socially good”. Society as whole needs to see the consequences of the status quo.

We need to change. Then we need to vote

Increase in wages goes directly into the pockets of landlords. It’s hardly the kind of redistribution of taxpayer money everybody wants.

Non-profit construction firms with nationally guaranteed access to redevelop land and waive local zoning, subject only to nationally-set conditions, would help a lot of cities.

The enemy is the same as it's always been: landowners.

Set a few KPIs (housing profit metrics, supply/demand, price vs national average) and trigger forced non-profit supply if they exceed thresholds.

The problem now is there's an unbalanced equation in favor of homeowners. (Said as an owner and landlord)

And why would social workers be more deserving than bakers?

Bakers can compete with other businesses for physical availability to customers. It is nice to have a bakery at every corner, but city would be doing just fine without a single bakery. Teachers and police must be in every district, effectively excluded from that competition.

We spent most of history without teachers being widely available to the population.

I can't say the same for bakers.

Most of history was the time of enormous inequality, low life expectancy etc and majority of population did not enjoy a croissant and coffee at the local bakery in the morning. People baked bread themselves.

> Most of history was the time of enormous inequality, low life expectancy etc and majority of population did not enjoy a croissant and coffee at the local bakery in the morning.

Ah I understand now. You are simply so out of touch with reality that you believe that bakeries are only used to produce croissants for startup engineers.

Bakeries and village ovens were the basis for survival for a large part of our history.

Social workers on the other hand are a prime example of a wasteful administrative layer between people in need and money from social programs.

>You are simply so out of touch with reality that you believe that bakeries are only used to produce croissants for startup engineers

1. I do not think personal insults are appropriate here.

2. Bakery as a small business did not exist in most places and it’s not the same as a “village oven”, which by the way was not a thing in many agrarian cultures.

3. What do you know about the needs of the people in need? Have you ever interacted with a social worker as a receiver of care? And most importantly, what do you know about welfare system in Germany?

They meant jobs important to society, bakers would probably be near the top of that list

Why would bakers be near the top of that list? Isn’t diabetes and obesity the top health problem around the world?

The point of my comment is to show how ridiculous it is to try and rank “social importantness” of jobs.

Bread has been a staple in most diets for millennia

Why is that relevant? People have not had access to excess calories until the last 100 years.

Is that some kind of joke? It doesn't seem to be a question in good faith at any rate.

Run this thought experiment. In one world, every banker disappears overnight and banking becomes illegal, in the other, every social worker disappears overnight and social work becomes illegal. Which scenario leads to a worse world to live in? Which scenario causes more human suffering?

ok, but they were talking about bakers, not bankers..

I think this (non-market housing) [1] used to be a more prominent thing in Canada. Basically we used to have a parallel system that was based on fair value instead of price gouging. Once that was lobbied out of existence things started going down hill.

1. https://vancouversun.com/homes/government-support-crucial-to...

> state intervention would make property market unattractive

State intervention is why they are attractive in the first place.....

>government could invest 50-100B€ in creating non-profit construction verticals that will oversaturate market.

Given how our infrastructure projects tend to go, I expect that level of funding would produce a single midrise apartment complex in Boston with construction completing in 2060.

I’d be kind of surprised if the building funded by the German government in euros ended up being built outside of Germany, but you know what they say: location, location, location.

Well, yes. I mean if the US were to undertake something similar to the proposal.

Germany as of late doesn't do much better; see what happened to Berlin Brandenburg Airport, which was a decade and 4 billion euros over budget.

Both governments and corporations poorly execute big projects, but public housing isn’t one of them. It’s thousands of small projects, that can be operationally standardized and thus become perfect job for Germans.

that's a problem onto itself. small scale building projects are very inefficient :/

It depends. Few lessons could be learned from Soviet times, taking Marzahn district in Berlin as an example. You need to integrate suppliers of construction materials, pre-fabricate large construction elements and design buildings from standardized elements, adding some variability on facade and layouts to make it looking more fancy than Plattenbau. Whole district can be designed and built at once to ensure availability of healthcare, child care, public transportation etc. This allows to design projects and build quickly, reducing bureaucracy. One more step to accelerate time to market is to sell without interior elements like floors or shower, just raw walls and connectors to water, sewage and electricity. The new owners/tenants may then design interior themselves or purchase standard design. They may be obliged to finish interior works by a certain deadline in the same time frame as neighbors.

But those people who bought expensive properties are the ones with the power to change the situation.

It would be a lot less disruptive and more efficient to just tax wealth and redistribute it instead.

One can dream ...

Hey, if my money and property is “a necessary sacrifice” then who am I to argue? Come, live in my house; take some of my food. Do you need clothing? A car? I am at your disposal. Together, we can build a better economy (for you).

Ah yes. The classic straw man in the wild.

The straw man where some dude is like “hey I need your money more than you” and I’m like “could we not?”

Look I get it, it’s annoying to live in a dump where so many people live in public for whatever reason (lack of educational opportunities, structural racism, gender violence, poor healthcare, you name it, I agree it’s important) but if thirty percent of my income isn’t helping I sincerely doubt fifteen percent of my house is going to help much either. Sadly, I just don’t have that much to give.

That is precisely not what would be happening. No money changes hands. An investment is a risk. It can devalue for arbitrary reasons. This is not theft. This is not wierd. This is how it works. No one stole anything from the person/company that invested in property.

I’m glad you were here to explain this to me like I was a child!

But you have contradicted yourself. My “investment” (a strange thing to call my home but if you are more comfortable using your weird language constructs, so be it) is not being devalued for “arbitrary reasons” under your plan. Instead, it would be systematically torpedoed using the same old combination of the political system plus my money, with the additional kicker of some of the value of my home.

No, sir, what you are considering is not an arbitrary reason why my investment might decline, but a concerted political effort to shift the value of my home away from me.

Proposal: you should remain living in Europe and I will hope that your plan is successful where you live.

A government deciding to change course is most certainly an arbitrary reason in the grand scheme of things.

If it's not an investment then there is no problem for you. You continue to own your house, nothings changed. No one comes to take the house from you. You can keep living there. You exchanged money for the utility of owning a house. The utility of the house won't change. So I'm not sure why you are so salty about the proposal.

Besides, it wasn't my proposal. I'm not arguing for or against it. I only called out your strawman.

My straw man of "you are not welcome to my property." I believe we have covered this ground!

Imagine, if you will, a place where all of a sudden, they did this. Subsequently, some of the people who live there wanted to leave. But they couldn't because they were trapped in their five hundred thousand dollar house. If they sold it, they couldn't pay off the mortgage because now it's worth three hundred thousand dollars.

Would they be salty? Why or why not?

That's the choice they made when they signed a mortgage they had no chance of paying off. If you don't want to bear that risk then don't get a mortgage.

How do you think a person gets a mortgage that they have no chance of paying off? Do you think this happens frequently? We’re you assuming that I can’t pay my mortgage off? Why would anyone take out a secured loan that they couldn’t pay?

I’m guessing that you probably don’t have a finance background.

As the author of original comment I have nothing to add to this. Explained perfectly.

So what's your take on mortgages? If my house happens to be underwater after the Purge or whatever we're calling your rearrangement-of-the-markets, am I just trapped there until I pay off the loan? Pretty dismal if so.

Property bubble bursts happened before and margin calls happened before. Investors who borrow the money must always consider the risk of market going down for various reasons. But realistically, a SOE intervening on the market won’t be able to create an oversupply in years. More likely it will require decades — long enough to pay significant part of the mortgage and balance the remainder with current prices.

Not a strawman. Direct quote from the parent: "Yes, a lot of people who bought expensive properties may forget about any returns, there could be some margin calls and banking system won’t be happy."

Saying housing needs to stop being viewed as an investment, and as such will be devalued, is not even remotely the same thing as saying, and I quote the person I replied to here: "Come, live in my house; take some of my food. Do you need clothing? A car? I am at your disposal. Together, we can build a better economy (for you)."

The straw men here is that everything should be sacrificed at the alter of a better economy. Which is not what was claimed.

What was claimed is that OP wants some of my house. Unsurprisingly, I wasn’t in favor. No one is asking whether everything should be sacrificed, I’m just asserting that none of my things should be: not my home or my food or my clothing. When you attempt to steal these things I resist .

This idea that we would all be better off if you simply had some of my stuff is bad and wrong.

>What was claimed is that OP wants some of my house.

That was a pretty strange assumption. Nobody wants your house. I just don’t care if you won’t be able to sell it with any profit or even for the same amount of money. However, if property prices go down everywhere, you will be able to exchange it for equivalent property elsewhere.

Full disclosure: I invested in property myself and I’m fine burning that money if the outcome is healthier economy.

What if property prices go down some places (e.g., my house) but not everywhere? This would be a pretty big problem for me, right? What if I needed to move to one of the regular places all of a sudden for work? Or is the idea that it’s better for the economy for me to be trapped until I can pay off my mortgage as like a penalty for choosing the wrong place without knowing they would conver the market according to OP’s plan?

I’m all for a healthier economy, don’t get me wrong. It’s just kind of annoying for people to treat my largest asset as some kind of externality. It’s super that you are so generous to burn your money to help everyone but I would prefer to explore solutions that don’t intentionally detonate one of the most important markets in our economy and one that I cannot reduce my exposure to because I am naturally less inclined to give things away.

Investing borrowed money is always a risk and it is your responsibility to do your research and have good financial planning to be able to pay the debts. It’s not just regulations that may impact the market. Climate change, financial crises, some big business shutting down in your area and reducing the demand etc etc.

It is up to me to do my own research and see whether people in my state or city are getting set to tank the economy on purpose because their politics are awful. This is actually not terrible advice. Hell, the rest of this post is just wall to wall facts.

I'm a bit at a loss here. I was getting all warmed up to try to have an argument with you but it appears you're probably right. Well, you can't win them all.

This entire "greedflation" saga is a bit surprising to me.

That economic scholars are pushing hard against "greedflation" and for the idea that the main driver of inflation is greedy laborers and their excessive wage demands, is as expected.

Until very recently these were the only kind of scholars allowed airtime about this topic and their explanations to laymen seemed to hinge on very naive ideas about the level of competition in various markets.

What happened to make the "greedflation" story more palatable? Surely it must be something other than just disproving these seemingly ridiculous and ideologically driven ideas about the level of competition?

Joseph Stiglitz agrees with greedflation.* He is a Nobel Prize winning economist. I believe greedflation is easy to prove - huge increase in profit margin without a corresponding increase in costs, and public corpo PR focused on “inflation” as an excuse. It’s easy to prove with data.

IMO there are economists who talk about economics as a cult/religion, described by alt-economist Steve Keen as “economism”. One needs to distinguish between them.

* here is Stiglitz’s talk on the subject if you want to hear his opinion and corresponding dataset: https://youtu.be/4BAsZIHp9HI

Of course there are serious people that also disagree with it (I'm pretty onboard fwiw).

"Industries that raised prices more didn't tend to also make high profits":

https://twitter.com/Noahpinion/status/1663865153039790081

I can't find the graph now, but I saw a good one showing that largely the profits aren't in the companies with workers demanding higher wages.

So, like in all things economic, a Nobel Prize isn't going to bring consensus.

(and you could easily find Nobel Prize winning economists on the other side of Stiglitz- probably most of them are in any given topic)

Sure I just think Stiglitz has been more right than wrong on virtually everything I’ve seen him talk about, which makes me have a high level of trust on his work.

Here’s his talk on the subject: https://youtu.be/4BAsZIHp9HI

Yeah, it isn't that mainstream though. I like his take on this and largely agree with him.

Is the mainstream consensus on important matters actually correct most of the time or all of the time?

Or is it actually wrong, misleading and/or imprecise at least some of the time ?

Particularly on this issue, I think the mainstream consensus is what Central banks are doing in response to inflation.

Are they wrong at least some of the time? Hell yeah.

Stiglitz main points of his talk is he believes the central banks are mostly wrong. He says they will succeed in taming inflation only by slowing down the economy / destroying economic activity (one way of doing it?) he suggests that there are far better avenues of action to pursue but the consensus is so strong on “let’s do what worked before” (Volcker) that they are doing things that are sometimes even counter to their anti-inflation goals in some markets.

I believe (from memory) he says particularly in housing he believes the current policy will lead nowhere since increased interest rates disincentivise construction.

>greedflation is easy to prove - huge increase in profit margin without a corresponding increase in cost

But how would the cost of the previous few years (uncertainty from covid, war etc) show up in the current price? I doubt they have a line item for the risk/hardship the business had to go through over the past few years, but it's definitely going to have some cost that's expressed at a later time in prices. How would you account for that?

Stiglitz has a talk about this where he discusses exactly this.

Can’t think of the time though: https://youtu.be/4BAsZIHp9HI

"Joseph Stiglitz agrees with greedflation. He is a Nobel Prize winning economist"

Personally, I am not forming an opinion until I hear what Paul Krugman, another "Nobel Prize" winning economist, has to say.

He says many things as well. Big brain on him.

Joseph Stiglitz has a 50 minute presentation on inflation, greedflation and monetary theory you can watch here: https://youtu.be/4BAsZIHp9HI

Feel free to debunk it.

I know some (now retired) marketing execs, and they were saying “just watch” about greedflation all last year.

“Once there’s an excuse to raise prices, you raise them - high and fast - until sales fall”

I want to point out that the argument has never been “greedy laborers” in the pejorative sense. The argument has been that laborers need to rationally account for future inflation, which itself contributes to inflation.

The reason that corporate profits aren’t often mentioned is simply that people had expected competition to naturally curtail profits, since in a competitive market, manufacturers should happily lower prices (a bit) to capture more market share and thus more profits. The fact that doesn’t seem to be happening is why this cycle is interesting and why we are now talking about it.

Yes, and that expectation seems either naive or ideologically blinkered to me. Especially after so many decades of consolidation with antitrust being a thing of the distant past.

Seems to me it can't be merely a gathering of facts and deliberations that have now made it allowable to talk about a profit-price spiral without being heckled or laughed out of the room.

It will be interesting to see if this shift in the discourse on inflation could precipate a change in the discourse on antitrust in the US as well.

> What happened to make the "greedflation" story more palatable?

Maybe it's better communication or more of a willingness by people to admit they're struggling and broke. When you talk to everyone you know and no one is making any more money than they were 3 years ago, but the prices of everything have increase substantially, it's not illogical to think there's someone else getting all that extra money.

In Canada everyone knows people that work in the resource industries. No one doing the actual work is getting paid significantly more, so it must be the mill owners, mine owners, oil rig owners, etc. that are starting the chain reaction, right?

> Until very recently these were the only kind of scholars allowed airtime about this topic

I’d gently suggest that there may be some selection bias in your news consumption (as there is in mine, too!)

I saw a large number of explanations beyond wage-price spiral, on sources as varied as CNBC, The Atlantic, and gen-z-Tik-Tok folks.

You may be observing a shift from commentary “pissed about the people saying wages = inflation” (because it’s false) to commentary about “it’s actually the execs” (which seems true)

I hate the word “greedflation”. Greed is always there, reduction in competition and price fixing is not.

Economy shut down for almost 2 years for COVID - that productive supply was lost while people continued consuming (at record pace). There has not been any real policy adjustment to address the imbalance. The rentiers didn't take any of the pain, they're trying to pass it all along on the productive class in the form of increased financialization of the real economy and higher interest rates. It's disturbing

The "rentiers" aren't the ones who shut down the economy (that would be bureaucrats and politicians at every level) and have any say over interest rates (that would be central bankers). Seems strange to blame them for all of that.

Besides, why do you say that higher interest rates are harmful to the "productive class"? For every consumer who has to pay extra in their mortgage or auto loan due to higher rates, there sits a saver on the other end who gains from it.

No because fractional reserve. The money for mortgages and loans are created ad nihlo

"greed"? The force that pushes back on corporate greed should be competition. The problem is the modern trend of consolidation, monopolisation and lack of proper competition.

Why compete when we all own index funds? Just use proxies to communicate and sychronize about "industry and sector costs and margins" and take your share. Maybe work a little on cost reductions to look good, and don't rock the boat: So long as investors can be exposed to whole markets and industries without caring about individual winners, there's really only one owner of the publicly traded participents.

Or is that an exaggeration?

Yes. It's something that could happen, but I don't think it already has. The CEO is usually more exposed to their own company than any other.

Another factor is the consumers. They settle on a brand and refuse to try alternatives. Often for good reasons, but it still reduces competition.

Switching "brands" is a false choice when there are 100s of "brands" all owned by the same 4 conglomerates and all coordinating prices.

https://www.theguardian.com/environment/ng-interactive/2021/...

https://www.visualcapitalist.com/illusion-of-choice-consumer...

it's not a bug, it's a feature. https://en.wikipedia.org/wiki/Capital_accumulation#Over-accu...

These large cost increases have been great for businesses. If your company buys a widget for $10 and sells it for $50 and the cost goes up 20%, you can tell your customers our costs have gone up 20% and we can't afford not to pass on the increases, etc. The thing is the business is only paying $2 more, but the customer is paying $10 more. Plus we also have businesses like supermarkets that saw a huge increase in demand during the COVID restrictions, where people couldn't travel, eat out, go to concerts. But even after the record breaking year due to a non repeatable event, they still expect to grow on top of that. When demand falls, the only way to keep or grow your revenue is to increase prices.

Greedflation, copying what other companies do and preparing for expected new supply chain problems all contribute to profit-price spirals.

This whole story to me is a sobering and depressing tale of just how effective propaganda is, even with a relatively well-educated and informed audience here on HN. Why do I say that? Because for months I've been saying this but typically such comments get downvoted into oblivion. So many people even here are seemingly unwilling to pause for a few seconds and consider the evidence or simply to question the narrative that we need to raise interest rates or that it's our only tool for fighting inflation or that somehow wages are responsible for inflation.

For the record, none of those things are true but yet so many people are conditioned to suck the boot of the capital-owning class, perhaps from the mistaken belief that those people are the capital-owning class or will be someday. You are not Elon Musk. You will never be Elon Musk. Elon Musk doesn't care about you. He would melt you down for parts if it meant an uptick in profits.

In the 70s, with the oil price shock we had Nixon, a Republican, quite effectively tackle inflation with wage-price freezes. We've had some countries tackle greedflation with a windfall profits tax.

Personally, I'd be happy enough with a mechanism that as long as inflation is above 4%, the corporate tax rate is 80% and all share buybacks and dividends are suspended.

The capital-owning class (who own both parties in the US political system) have effectively decimated any form of labor solidarity so people vote against their own interests. Who doesn't vote against their interests? The capital-owning class.

> Personally, I'd be happy enough with a mechanism that as long as inflation is above 4%, the corporate tax rate is 80% and all share buybacks and dividends are suspended.

Ok, so promote your ideas elsewhere. Why does it even matter, if people does not agree with you here.

You think you are right. But it is not some kind of settled science that everyone must agree.

A "profit-price spiral" is simply not a thing. Even the people who use this term never define what exactly is "spiralling."

It seems like certain economists are intent on obfuscating the role of expansionary monetary policy on inflation by pointing their fingers at "corporate greed", when they are in fact not exclusive. Corporations are always greedy, so when the economy has more money, they're going to do what it takes to siphon as much as they can. Sometimes, this means that selling more goods and services, which doesn't increase inflation and is the desired outcome of monetary expansion. However, due to supply problems and closures due to the pandemic, this wasn't possible, so corporations increased prices instead.

The idea of "greedflation" is strange, it seems to only be understandable if you start with the (unconscious?) assumption that workers cannot be the losers of inflation.

Care to elaborate? The entire problem is that workers are the losers. The "price level" in the economy isn't actually rising, companies just realized they can extract a greater share of total surplus by just raising their own prices, relying on the particularities of the labor market to avoid needing to raise wages along with those prices.

As I like to tell people: if the CPI is going up but your salary isn't, it's not inflation, it's you getting poorer.

Interesting read, good to see information on it from the German perspective, as the phenomenon seems to be playing out in most of the West.

Weber has been fair vocal about the directionality here:

https://www.newyorker.com/news/persons-of-interest/what-if-w...

With an interesting take on why it is occurring now (contrasting coming out of the pandemic & coming out of WW2, where industry needs to rejig supply lines, different things are in different places profitability wise).

Meanwhile, most of the wage-price spiral talk has been coming under a lot of fire, from both the right and left of economics. For instance, the Libertarian / right Cato Institute:

https://www.cato.org/commentary/wage-price-spiral-explanatio...

or an Australian thinktank's take:

https://www.theguardian.com/business/2023/feb/24/an-economic...

while the Australian Treasurer says similar things:

https://www.smh.com.au/politics/federal/australians-hit-by-l...

and the IMF struggled to find good evidence of them:

https://www.imf.org/en/Publications/WP/Issues/2022/11/11/Wag...

These critiques have been glad to see, given it seemed everyone seemed to want to blame workers in the first instance, when they are still doing just a lot of catch up with their household inputs.

Of course, even Cost-push inflation itself is poo-pooed as an idea by lots of mainstream economists (like Milton Friedman and co), so this pressure on greedy companies (which I think is their default position) might find a better audience (although Friedman would just say, where is the extra quantity of money coming from).

The mainstream media seem to throw everyone under the bus as they try and write an article about whichever statistical release happened on any given day, but I'll take greedy companies over greedy workers for today.

The whole wage-price spiral theory is such bunk. The last time we in the U.S. saw significant inflation that could be directly tied to that was a time when union membership was at a much higher % of the workforce, and many unions had clauses in their CBAs that _automatically_ triggered wage increases in response to inflation.

The economy in the U.S. is in such a different place now, falling back to that explanation seems almost like intellectual malpractice.

The wage-price spiral theory is the sort of thing that would lead to a boom in the guillotine supply industry if it were more widely known or understood. “Worker wages going up is intrinsically bad and should be fought by intentionally causing a recession and putting people out of work” is the kind of thing economists can say out loud in public because there’s no such thing as class solidarity outside the billionaire class anymore.

Anything goes to have the public look away from the government's insane over-spending. Enabled by central banks.

This is a non-sequitur.

The concept of "greedy companies" is IMHO counterproductive. If a kid is being greedy, and that's the default state for a young child, you tell them to share and eventually they learn to do so (well, most of us, anyway) because it's in their best interest to do so.

But companies are explicitly designed from the ground up to maximize profits at the expense of everything else, to the point where they get sued if they don't maximize shareholder value. So of course they're going to be "greedy" and yank up prices as much as they can, and telling them to "share" is going to accomplish nothing: it's going to need much more fundamental reforms to actually change the way they're incentivized to operate.

> to the point where they get sued if they don't maximize shareholder value.

I'm pretty sure that 'maximizing shareholder value' is not a requirement for a company. Not even in the US.

> they get sued

I've seen this claim before but no one ever provides a link to any cases. So, do they? Are there any easily accessible descriptions of such events?

In the US, Director's have a fiduciary duty to the company, and in particular a duty of loyalty. The duty of loyalty largely means that you must act in the interests of the company and its shareholders- this is where I think most people get to the 'maximizing shareholder value'.

However, afaik, as long as you act in good faith, and take due care, then I don't think there is any case law saying that if you decided that a lower profit margin (for instance), would be better for the company long term, even if some shareholders disagree, that you'd have any issues.

(ie, I think you're correct, it is totally overblown on the net that they MUST MAKE MONEY)

The precedent in the Delaware Court of Chancery (where pretty much all of the litigation would take place) explicitly does not endorse the idea that corporate fiduciaries must focus on short-term profit making (i.e., maximizing shareholder value) above all other obligations.

That's why we don't really have the type of lawsuits that you're talking about. What we do have is the type of suit that is "everything is securities fraud" where the allegation is that corporate fiduciaries committed securities fraud by omitting or concealing information that would have tended to dent their stock price.

That characterization might be over blown, but it's functionally equivalent to reality because hostile takeovers are a thing.

Any board of directors that isn't ruthlessly maximizing profit is likely to be replaced by a temporary majority of anonymous shareholders with no attachment to the underlying company beyond whatever quick buck they can make off the stock.

Apple even publicly declared its interest in making its products recyclable and told investors who didn’t like it to “get out of this stock”, so it seems like it’s possible to challenge the pure profit assumption.

Whether it's a "requirement" or not is irrelevant (and you'll note that I did not claim it is). The part that matters is that companies in practice do act to maximize profit and hand that profit to their shareholders.

> companies in practice do act to maximize profit

Again this blanket statement seems to be at odds with observation.

> But companies are explicitly designed from the ground up to maximize profits at the expense of everything else

I don't think this would be as much of a problem if said profits would be used in the companies interest. But instead the money is used to make some rich CEOs & shareholders even richer while semi-legally avoiding as much taxation as possible.

Well, that's the thing, if a company is controlled by its stakeholders of course the stakeholders will funnel all the profits straight into their own pockets.

This is exactly why we have benefits (B) corporations, where companies are required to support the original mission of the company. Of course, the problem is that the vast majority of companies out there are not B corps.

> to the point where they get sued if they don't maximize shareholder value

This is a huge exaggeration. Corporate executives sometimes get sued if they actively destroy shareholder value. Approximately nobody is getting sued for "not maximizing" it.

If anyone is curious to learn more, look up the "business judgment rule" with reference to D&O litigation.

This seems like a pretty good take [PDF] from the Kansas City Fed: https://www.kansascityfed.org/Economic%20Review/documents/93...

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