Hacker News Reader

Comment by slibhb | Hacker News Reader

In every social mileu there are insane things that are commonly believed. Believing in "greedflation" is like believing in vaccine microchips.

View on HN

I see a lot of ultra-dismissive comments like yours whenever this is posted, but it seems to me like putting "believes there are microchips in vaccines" and "believes corporations will try to raise prices when they think they can get away with it" in the same league is a conversational gambit so daring that I have to wonder what your motives are.

“corporations will try to raise prices when they think they can get away with it” is just firms being firms and has no additional explanatory power.

This has some explanatory power: they can get away with charging more dollars because more dollars are available.

The money supply expanded like never before in 2020: https://fred.stlouisfed.org/series/M2SL

It is now contracting, which is also unprecedented. We may well end up with deflation and while that sounds nice, we don’t know what might break.

This has just as much explanatory power: They're able to charge higher prices because individuals are saving less than ever, believe that rising costs are due to inflation and not corporate greed, and don't perceive it as price gouging but rather as a consequence of the current situation in 2023, including the global pandemic and the war in Ukraine. Additionally, we're witnessing an unparalleled level of consolidation across various industries, significantly reducing competition compared to previous years.

We're not on target for deflation; American consumers love spending money and are currently doing it as hard as they can. We seem to, amazingly, be hitting the soft landing.

Some other countries are doing poorly at the moment, but that's always true.

If you want to see the money supply shrink more, I'm told a good way is better tax enforcement.

https://x.com/bbkogan/status/1733190102245888366 (sorry for the informal source…)

"Greedflation" describes an observation that is independently verifiable. Publicly available data.

"the report finds that company profits increased at a much faster rate than costs did, in a process often dubbed “greedflation.”

Counterpoint: during COVID, supply costs of all types -- labor, transportation, raw materials -- were far less predictable than ever before. Therefore, a "risk premium" was embedded into prices.

You're the CEO -- for the past 5 years, costs rose steadily 2-4% annually, and you raised prices 3% each year. Now Covid hits, everything is in chaos, you expect costs to rise somewhere between 5 and 15%. Of course, there is also the possibility that you won't be able to access one specific ingredient at all, or that one element will spike in price. Now -- as CEO, how much do you raise prices? Just the average between 5 and 15, or do you err on the side of safety and raise prices 15%, or even more?

Perfect excuse to raise prices and make more profit than necessary, disguised as a "risk premium". Regulators would need to audit this.

a) what profit is "necessary"? a business's goal is to maximize profit.

b) risk premiums exist in every form of economics. it's why, typically, stocks return more than bonds over time, for example. Why would regulators be interested in auditing companies for acting rationally?

Necessary to cover increased costs and manage actual risk. Where there is a lack of competition or opportunity for collusion companies can and do exploit the situation rationally. Just because it is rational doesn't make it legal or ethical.

A minute ago you dismissed the concept of a risk premium and claimed regulators needed to step in. Now it's ok for businesses to manage actual risk?

Why is this so difficult for you to understand? This is not complicated.

I am not dismissing the concept of a risk premium. I am saying they can exploit the concept of a risk premium to justify an excessive increase in prices, beyond what is reasonable. Companies can collude to set higher prices and blame inflation.

Antitrust laws and regulations exist for a reason. Companies have been cheating since the beginning of the history of companies.

> I am not dismissing the concept of a risk premium

You wrote:

disguised as a "risk premium"

Saying something is just a disguise for something else and, for additional emphasis, putting air quotes around it is an unmistakable dismissal of the concept. Hard to imagine how you could have been more clear.

So there is a risk premium, and then there is a "risk premium".

Neither is a dismissal of the concept itself. It's about the intentions of the companies.

Cool it with implying bad motives. It's against HN guidelines.

Of course corporations will try to raise prices when they think they can get away with it. The question is, why did they think they could get away with it? Or, put the other way, why didn't they think they could get away with it before?

I assert that what prevented them before was competition - if you raise your price, and the other vendor doesn't, you lose business. Well, what happened? Did that mechanism just take a holiday? Did competitors disappear? Or what? Why did companies think they could get away with it now, when they didn't think that before?

That's where all these "greed" explanations fall short. Of course companies are greedy. They were greedy five years ago, too. Why weren't they raising prices then?

The way I heard it, energy prices rose, some companies increased prices in anticipation of much higher costs, everyone followed suit, fearing the increased costs, and the prices all surged.

And they didn't get punished enough in the market to make them back off? Plausible. That isn't quite "greed", though. That's fear.

It also could be a self-fulfilling prophesy. Companies' costs did in fact rise, because all their suppliers raised their prices...

Don't fixate on the term 'greedflation,' as it's based on the widely accepted notion of corporate greed. The primary counterargument to greedflation is that companies have always been greedy; it's not a new phenomenon. The concept of greed is entrenched in capitalist economies. However, the theory is that demand should naturally regulate this greed—if a company becomes excessively greedy, they risk losing customers who may opt to spend less, save more, or patronize other businesses. Thus, there's an assumption that the system self-regulates, allowing only as much greed as the market can bear.

Microchips are actually a more defensible belief. I can deduce that inflation isn't caused by greed with an extremely basic knowledge of economics. Meanwhile, while it seems a priori extremely unlikely that Bill Gates has been spiking our vaccine supply, in order to actually disprove it, I'd need a microscope and some time.

> I can deduce that inflation isn't caused by greed with an extremely basic knowledge of economics

Nobody is saying inflation doesn't exist.

By your logic any price hike is to be accepted and not questioned because "basic economics"...

You have a lot of faith in a lot of people who's sole purpose in life is to make more money than they did last year.

> Nobody is saying inflation doesn't exist.

Bizarre non sequitur.

> By your logic any price hike is to be accepted and not questioned because "basic economics"...

No it doesn't. But by your logic, surge pricing is theft.

I have no particular faith in people. I observe that there's all kinds of irrational, nonsense beliefs scorned by mainstream economists that are popular among certain groups. "Greedflation" is dumb economic populism, nothing else.

Idk how to dumb it down enough because your logic is so flawed:

X causes Y doesn't mean Z cannot cause Y too.

You might want to reconsider that your 'basic knowledge of economics" isn't enough to explain everything.

https://australiainstitute.org.au/post/oecd-confirms-that-in...

https://www.npr.org/2023/05/19/1177180972/economists-are-rec...

https://www.investmentmonitor.ai/news/corporate-profits-resp...

https://www.ineteconomics.org/perspectives/blog/profit-infla...

I feel like you're an LLM having a fit of hallucinations.

Like I said, in any social mileu there are insane things that are commonly believed. Providing evidence that people believe in "greedflation" doesn't contradict that at all.

how would you do this with a microscope? Would you watch all blood flow through it and then check for microchips? Sounds interesting.

Bingo.

> I can deduce that inflation isn't caused by greed

Try actually reading the article before commenting. The article does not say that inflation is caused by greed. Not even close.

"Greedflation" is the theory that the 2021 spate of inflation was caused by greed.

You didn't read the article. Greedflation is a theory that some companies exploited inflation to create excessive profits, not that greed was the sole cause of inflation.

Here is the study: https://www.ippr.org/files/2023-12/1701878131_inflation-prof...

I don't have to read the article to know what "greedflation" means. You read the article and don't know!

So you are proud of being stupid and illiterate. Instead of accepting a correction you double down on the stupidity. Childish.

I mean if it helps them pretend that helicopter money can't possibly have any negative second order effects then they'll believe whatever you tell them.

Yes, after 2 decades of screeching from the "helicopter money" crowd, we suffered a short bout of inflation.

A reminder: Inflation is a hardship, a short one in this instance, unemployment is a crisis.

> Inflation is a hardship, a short one in this instance

Excess inflation represents permanent hardship. Inflation is a growth rate -- if it is 2% every year, then spikes suddenly to 8% for a year, and goes right back to 2%, that excess 6% is permanently embedded in prices in all future years. (very simplified example, but the concept is valid)

But in the long run, wages will increase to catch up (unless there is an external force keeping them lower than they once were).

Put another way, we don't suddenly have 6% fewer goods and services for the rest of eternity just because the value of the dollar changed.

No. Rising wages are often the cause of high inflation, but wages do not increase as a result of high inflation. The harm from high inflation can be measured as increases in alternative (non-earning) methods of accessing money -- low savings rates, high credit card balances (and delinquencies), high levels of borrowing from 401k's (or low contribution rates), tapping into home equity -- which is exactly what we are witnessing now, not coincidentally, right after the biggest inflation spike in decades.

I won't pretend to be an expert on the matter, but I'm not very convinced by your argument.

> [...] wages do not increase as a result of high inflation

Not in the short term, sure. But if the cause of the inflation isn't something permanent, labour is still (somewhat) subject to the same market equilibrium (in real terms) as it was before the inflation. There are some major caveats here (e.g. wage stickiness), but we're talking long-term.

> which is exactly what we are witnessing now

I don't disagree, but again this isn't long-term. I assume you wouldn't expect these effects to last for the rest of eternity (assuming inflation returned to 2% and stayed there)?

I'm not sure what market equilibrium you're referring to. If things always balanced out in the long-term, our economic situation would resemble the 1950's or 60's, where a single-income household could comfortably afford a suburban house and raise kids. Instead, we have people living under their parents' roof until 30 or longer, enormous college debt loads, majority of families relying on two incomes (and often, one or both parents moonlighting at a second job), housing costs taking a larger slice of total incomes than ever before, married couples refraining from having kids as an economic decision, more people than ever relying on some form of government subsidy. None of these factors would be growing if some long-term equilibrium existed, because at some point, we'd be reverting to the mean. Instead, society's lifestyles have slowly shifted in response to the fact that, over the long-term, producers have become increasingly effective at extracting a larger and larger share of consumers' incomes, and ultimately, realized and potential wealth.

But surely you'd agree that most of those things are ultimately caused by external factors, not just some sort of long-term build up from inflation over the years?

> society's lifestyles have slowly shifted in response to the fact that, over the long-term, producers have become increasingly effective at extracting a larger and larger share of consumers' incomes, and ultimately, realized and potential wealth.

It sounds like we basically agree (even if I'd describe it a bit differently)?

Edit: I guess what I'm trying to get at is that there are lots of different things that can cause inflation, and not all of them follow your example of "that excess 6% is permanently embedded in prices in all future years" in real terms.

> It sounds like we basically agree

by "producers", I am not referring to wage-earning employees, but (primarily) corporations and business owners.

> there are lots of different things that can cause inflation

yes, true. but you've offered no support for your original claim that "wages catch up," or that the negative effects of brief periods of excess inflation are not long-lasting.

Even if wages did catch up, retired folks are permanently disadvantaged. There’s a reason why the Fed targets a low inflation rate by default than letting it float freely.

Agreed, but my comment was more specifically about inflation being "permanently embedded in prices".

Also, retirees with savings don't tend to have all of it in cash (I hope?), but even if they do, the higher cash rate will slightly offset some of those effects.

And requiring a job a tradegy.

The woes of entropy.

Reply on news.ycombinator.com