took advantage of...the political narrative...to raise prices for more profit
I genuinely don't understand why so many people think this matters. What do you think would have happened if companies had decided to raise prices without having an "excuse" like this?
Prices aren't kept under control by consumer outrage; we all may be mad about food prices, but we all still have to eat anyway. Yes companies are bragging about being able to raise prices, but it's not "because they can", it's because there's a supply/demand mismatch.
The cause of that mismatch is complicated and varies by market sector, but this isn't some case of like, they couldn't raise prices in the past because people would get too mad at them, but now they've finally figured out how to fool everyone into not getting mad. It's clearly a much more nuanced situation we're in, no?
No, it's because demand for food is inelastic.
Free market theory is useful for getting general ideas for how doing X or Y might affect the economy, but once you're talking about the actual economy made up of actual people, you need to forget it, because "free markets" that actually follow those simple rules directly are effectively nonexistent.
In this case, you don't even have to go so far as to say the theory is wrong, because it lays out certain conditions for what can be considered a "free market", and elastic demand is one of those.
> they couldn't raise prices in the past because people would get too mad at them
They didn't raise prices before because they believed people would get too mad and they'd lose money.
Due to a fairly complex combination of factors, that's no longer true.
Some of those factors are the increased consolidation of nearly every part of our economy, meaning that there are vastly fewer players in a given sector that would have to defect in order for this to stick; the (relatively speaking) massive levels of political and economic turmoil the US (and the Western world more generally) has suffered over the past several years, leaving people much more numb to stuff like this, at least in the short term; and the number of people willing to sit there and justify their actions for any of a wide variety of reasons. (And yes; the supply shocks of the pandemic that actually justified raising prices are a major factor, and were clearly the trigger for this—the thing that either gave them the idea, or showed them that it might work.)
You are simplifying too much by saying demand for food is inelastic. It's true that people consume roughly the same amount of calories every day. However, Grocery stores are a low-margin business. Your grocery store is in constant negotiations with suppliers that vary from local produce farmers to General Mills to Anhauser-Busch. Some suppliers may be making high margins.
The idea that increased consolidation has caused this inflation has to compete with other ideas- such as:
The productive output of all sorts of businesses decreased during the pandemic at a time when the money supply increased. There were more dollars chasing fewer goods. As the pandemic eased off, the productive output was able to climb back to capacity, but money supply increases (and lagging effects of reduced inventory of goods) remained in effect.
In a time where there is less production, the production that remains is more valued. Margins would tend to increase in this environment.
How do you prove that the consolidation effect is more relevant than the macroeconomic picture?
This would be a good argument but I feel it’s undermined by the heavy consolidation in the food market, no? If the same company is selling each product, then it doesn’t matter as much if a consumer switches between them
I agree with the rest of what you said. I certainly don’t know how to prove which is more relevant but I believe the supply shock and excess money played the largest role, however I think it’s wrong to dismiss either as both seem to be at play.
Just because the cost of dry beans has gone up 10% doesn't mean that you can't save money by eating them instead of beef.
If customers don't switch to beans despite high prices for steak, it tells you something about the demand for beef relative to the cost sensitivity of customers.
Rather than people with limited disposable income already buying cheaper foods, and when those get more expensive, just having to buy less.
And, once again, for many, many things, the company that sells the steaks is owned by the same conglomerate as the company that sells the beans, and they're raising the prices in lockstep.
I could go on. I agree consolidation is a problem, but it's certainly not the only one.
I would add on class warfare. There's not really any such thing as corporation vs corporation anymore, it's class warfare with capital vs not, and capital knows it. All the X companies just raise prices uniformly because why would anyone not do it and ruin the party?
But that didn't happen. Eggs became more scarce, and therefore more valuable, and thus prices universally went up. People who still wanted eggs badly enough and could afford the high prices paid a premium for them. Other people bought and ate something else instead.
And then when the supply came back up, egg prices came back down. This is how the system is supposed to work, and it's exactly what I would expect to happen in a situation like this.
You're saying you really think that whole story had nothing to do with supply constraints, and it's all a big corporate class warfare price fixing conspiracy?
Tech vendors are increasing prices "to keep up with inflation" :eye_roll: [0]. Nothing at all to do with supply and demand here.
[0]: https://www.theregister.com/2023/06/16/tech_vendor_price_hik...
> But that didn't happen. Eggs became more scarce, and therefore more valuable, and thus prices universally went up. People who still wanted eggs badly enough and could afford the high prices paid a premium for them. Other people bought and ate something else instead.
So the egg supply went down. Yes, you'd expect to see empty shelves, because there were fewer eggs to buy, and they're useful. Instead what we saw were shelves as full as before, because of prices went up. What that means is, people were already buying fewer eggs, because the supply was so much lower, but because of prices going up, people bought even fewer than that. There were a shortage of eggs, and yet because of prices being raised, they couldn't even sell through on the eggs they had.
How much of the reduction in egg consumption was due to reduced supply, and how much was due to raised prices? No idea.
What would I expect to see? If the egg supply dropped precipitously, I'd expect a company which makes their money selling eggs to make less money. Or raise prices so that they make the same amount of money. Instead, they raised prices so they made way, way more money.
* https://www.businessinsider.com/kingsford-hiked-prices-too-m...
Yes it is "because they can" but they can because there's a supply/demand mismatch and demand is inelastic to price increases.
People aren't buying beans instead of steak because they really want the steak and can still afford it. The price of steak will only go down if people are no longer willing to buy it.
People very quickly adopt a “if you can’t beat them join them” attitude when facing resistance or throw their hands up and say “I’m just trying to live” or “that’s not my problem” when encountering a moral dilemma.
So no wonder that when faced with a moral dilemma most people put themselves in the position to say “I can see myself doing that and wouldn’t want to feel judged for it, so I’ll defend the practice because maybe I’ll need to do that later.”
I’m trying to figure out how to build the structure of society to promote the opposite of that - to make it trivially easy to say no to unethical behavior instead of just going along with the crowd. I’m coming up short with how to do that.
So then we have a problem don’t we? Either the expectation is that some plurality of humans have the ability to coherently manage this kind of epistemological chain reasoning. Or it is untenable for that level of coherency to be able to drive functional assumptions that are generalizable across all human communities.
And us, we’re back to where all moral philosophers have always gotten stuck, which is to say, we have no objective epistemological grounding for any particular type of moral reasoning chain - making every single, moral debate impossible to agree on generalized first principles.
So how do you structure society in a way such that the default behaviors diffuse power and increase pro social responsibility, given the fact that the current social structures demonstrate infinite examples of anti-social behaviors leading to power and wealth.
That is to say, how do you create a society where nobody even wants to be a millionaire because that level of relative over-consumption relative to others would just feel too bad.
It seems kind of unfathomable to me how people do not understand that privatized tyranny is still tyranny by a system that is socially reinforced - it doesn't have to be a government that does it whatsoever and the general rules of power kind of matters more for first principles than some arbitrary definition of "capitalism" or "socialism" or whatnot that may be irrelevant in another thousand years. It's always been about how to organize collective actions compatible with the context of human social development.
It sucks. It feels bad. But in the end it may be the only option you have.
Living with integrity brings about the most robust and beautiful experiences I've ever had. Significantly more happiness in this state than with a lot of money and all the things most people lie and cheat to have, and while I have never lied and cheated (much), my priorities were different.
Try living for a year where you don't care about money, you volunteer your time for people, and you operate in service -- where everything you build is purely for others, every encounter is a genuine exploration and interest in others, and service is rooted in a desire to uplift people. This is the opposite of most conventional action rooted in trying to take as much money from everyone as possible, or "what can you do for ME?"
This pattern makes dreams come true.
No amount of wealth and fame can counterbalance the depression you’ll live with by playing the game all the way to the top.
Unless you have a narcissistic personality in which case you’re not even able to read this without contempt for the whole concept.
When you are on your deathbed someday, I wonder if you'll have a wish like "I wish I worked even harder and made even more money." You might be the only one ever in mankind's history if so!
Of course you don't get to do this without some amount of risk of retaliation and collateral damage. But there is no conflict averse solution. The problem with the "structure" of society is that it has become too conflict averse.
This is why nobody called the effects of QE I and II correctly - if you recall it was supposed to cause widespread hyperinflation overnight when it was unwound.
Welp that was totally wrong because the financial system isn’t some deterministic mathematical function. It’s a political and human organization that will twist itself into doing whatever it needs to do to maintain the current power structure - up to and including breaking any rule that Mises, Rothbard or Jefferson could think of that would restrain the use of signoriage as political power.
According to which economists? Did you ignore the economists who vouched for them and said they wouldn't lead to hyperinflation? Regardless, inflation did happen because of QE I and II but it wasn't hyperinflation as many economists predicted beforehand.
https://www.worldscientific.com/worldscibooks/10.1142/8797#t...
Here is FT using examples from places that specifically policy makers read, which is where it makes a difference:
https://financialpost.com/news/economy/stubborn-inflation-ha...
1) stock market 2) company valuations 3) startup funding 4) housing
Basically the fact that Google, Facebook, Twitter blew up in user growth during the start of QE lead to all the QE money going into startup/tech investments rather than inflating commodities.
It's an issue of our system of controls: likely we should implement price control during times of high inflation.
Imagine if the following happened during covid:
- used car prices were locked/limited
- housing prices were locked/limited
- certain foods were locked/limited
Inflation would have not been an issue.
Wait a second, tech stocks are down like crazy for most of us. Fat good that did for us all as employees. Clearly raising interest rates isn't the kind of silver bullet that economists hoped it'd be.
- hardcore monetarists who think that inflation is always and only a monetary phenomenon
- hardcore Efficient Market Hypothesis believers who think that all markets are always perfectly efficient, so therefore all companies are always already charging profit-maximising prices
(These come up every single time and are immune to evidence. Also a bunch of people are going to ignore the UK and Euro qualifiers of the OP article and talk about US inflation)
Personally I'd like to offer a couple of extra lines of inquiry: labour market tightening due to COVID losses, and the impact of huge natural gas price spikes in Europe due to the war. See the IMF quote in OP:
> "Rising corporate profits account for almost half the increase in Europe's inflation over the past two years as companies increased prices by more than spiking costs of imported energy. Now that workers are pushing for pay rises to recoup lost purchasing power"
That presents a proposed mechanism for actual price changes ("menu reprinting" in economics jargon). Energy spike forces price rises -> once you're changing the prices, makes sense to change them by more than you need -> wages less elastic than consumer spending -> increased profits because prices have gone up faster than wage bills AND energy prices have now come down again.
What's a good example where a company is bragging about raising prices?
Regardless of tone, increasing profits is what is demanded by shareholders and given that 61% of Americans own stocks, I don't see how you break out of that loop.
What is a tractable solution?
In addition to private equity, there are also conflicts of interest from index funds. Institutional investors own over 80% of the S&P 500. Vanguard and BlackRock are the two largest shareholders of a majority of S&P 500 companies. This means BlackRock and Vanguard are the largest shareholder of American and United airlines. Some question whether or not this is also leading to higher prices [2].
0: https://www.ftc.gov/news-events/news/press-releases/2022/06/...
1: https://www.brookings.edu/articles/high-air-ambulance-charge...
2: https://www.nytimes.com/2016/04/13/business/dealbook/rise-of...
Those industries you named are far from consolidated. The largest veterinarian (VCA) owns 20% market share. The largest air ambulance one owns 30% (Air Methods). The largest general ambulance service (Envision) owns just 10%.
> In 2010, Bain Capital bought Air Medical Group Holdings for $1 billion, only to sell it five years later for double that amount to KKR, which, in turn, merged the company with yet another air-ambulance provider, American Medical Response, under the name Global Medical Response. (Tracking this shell game can be dizzying. In the three years between Hoechlin’s air-ambulance flight and mine, Guardian Flight merged with REACH Air Medical Services; both are owned by Global Medical Response.) In 2017, American Securities drastically accelerated private equity’s takeover of the air-ambulance industry with its $2.5 billion purchase of Air Methods, the largest domestic provider of air ambulances. (In 2016, during its final year as a publicly traded company, Air Methods posted a $97.9 million profit on $1.17 billion in revenue, and the year before had paid its CEO $2.5 million in direct compensation, including stock options.) That purchase established the industry’s current landscape, in which two private-equity firms, American Securities and KKR, control almost two-thirds of the national market for air ambulances, according to Medicare data.
0: https://nymag.com/intelligencer/2022/04/how-private-equity-t...
Also, regarding the vets, JAB bought emergency vet services in specifically target geographic locations to control the market for emergency vet services in those areas. They control a tiny portion of the overall market, but their consolidation still allows for higher prices in the regions they operate in.
Meanwhile drive by a mall or go to a store. They are packed. Lines are ling and people are falling over them selfs to buy stuff.
Cars. While recovering, are still hard to find. When dealerships have shortages they do massive markups. Lets are sold but huge profits per car. This price action is due to demand, bulls have to be paid.
Yet you totally ignore the masses of money injected into the economy. Hell we still have areas in CA where eviction is still banned and people are just living rent free.
There is just too much day to day evidence to consider your statement that gave zero examples as good faith arguments.
Next up. Replies replies showing a one off case of profit as status quo.
https://fred.stlouisfed.org/series/DRCCLACBS
Do not assume that because someone has expensive things that they also have a lot of cash and no debt.
> When dealerships have shortages they do massive markups. Lets are sold but huge profits per car.
If price increases are due to supply constraints profits should equalize, not increase (This is called price elasticity). People need cars and manufactures are taking advantage of that fact. The demand (actually absolute need) for a car make the price extremely inelastic.