Half of recent US inflation due to high corporate profits, report finds
theguardian.com
theguardian.com
Let's make money artificially cheap again and involve the government more in price controls. What could possibly go wrong there? I'd rather they just enforce existing antitrust laws and enjoy market forces working in their favor.
> Still, prices remain high. Consumers are still paying about 25% more for groceries, the report notes as an example.
By coincidence, the PPI for food manufacturers are about 25% higher than pre-pandemic[0].
> Diaper prices have increased by more than 30% since 2019 from
The M2 money supply is up over 40% since 2019[1], compared to ~1.5% in population growth. The available dollars per person in the system is up a lot more than 30%. Absent commensurate increases in productive capacity, things are going to cost more. And speaking of productive capacity: policymakers have been discouraging, if not outright hostile, to such endeavors, with all this rhetoric against profits.
Amen. This has worked out over and over again best for the consumer. Literally every problem we have is caused by monopolies.
If Microsoft in 1998 wasn't a monopoly deserving of breakup, I don't think anything except a strict 100% of the market, with precisely 0 competitors, owned by a single, comically scarre and universally loathed tycoon will count.
The idea that it's anathema for the American people to take control of their economy, that they must be subject to a wealthy few and the 'free market' forces, seems odd, and a bit too convenient for the power, pocketbooks, and egos of wealthy few.
It's also important to note that a lot of the price controls of this era were minimum prices. You couldn't make or sell steel below a certain price, etc.
Also, don't many of the solutions you name exist to 'correct for market failure'? Why are price controls different?
Minimum wage is a form of price control but it's one that's quite well studied empirically to have not super negative consequences as would be predicted by basic theory, perhaps because monopsony leads to mispricing of labor so minimum wage is fixing a market failure.
Regarding wealth and land tax. Whatever your view on taxation it's a necessary evil so may as well pick the least bad taxes.
Regulations can be a positive because they correct market failure. For example tragedy of the commons. Price controls that don't correct specific well defined market failure will add dead weight loss for no benefit.
My view on this isn't fringe. It's mainstream among Keynesian economists that price controls are uniquely bad as a general rule.
The free market allocates resources to those who can pay the most for them. That's good for corporations using lithium, but not, for example, for sustenance, shelter, healthcare, or education.
That said, I don't support price controls except for very specific situations. For example, when health or safety is threatened (lack of food, shelter, health care, for example) or to prevent extortion or exploitation.
Even when health or safety is threatened, price controls don't work; or more accurately, it works for some at the expense of others.
"Anti-gouging" laws on gasoline or bottled water during natural disasters, for example, remove incentives for market participants to on one hand supply those critical goods when where they are most needed and on the other conserve those scarce goods[0], and result in fewer people getting what they need.
Rent control and other forms of price controls on shelter have a long and deeply-documented history of having a lucky (or well-connected) few obtain housing, while others wait in line. It's further exacerbated by, again, the supply being disincentivized at the same time.
In all cases, there's a highly-visible benefit for those who are able to obtain those goods and services at a price lower than the market-clearing price, contrasted to the invisible suffering of those who couldn't. After all, setting a price of something to a value does not magically produce enough supply to match demand at that price (and often times actually reduces the supply over time). As an analogue to the idea that some profit-seeking enterprises "privatize the profits, socialize the losses", policymakers in situations like this "publicize the benefits, hide away the costs" of such policies.
> The free market allocates resources to those who can pay the most for them.
An important clarification: the free market allocates resources to those who value those resources the most, expressed by the signal of price.
Let's say a town is struck by a tornado and essential services are down, and there are 100 bottles of water, normally going for a dollar each. Let's assume that if the price is allowed to change, it'll go up to $10 per bottle. It's not like the rich man of town is going to buy up all 100 bottles at that highly inflated price; he'll buy one and take miserly sips, since he doesn't want to waste the most expensive bottle of water of his life. An 18-year-old who thinks he can get by for a day or two might not buy any bottles. A family with young children will be happy to spend the money for those extra bottles that just became available. In that way, the scarce resources are distributed along the lines of who value it the most. And the enterprising people of the next town over will brave the elements and the downed trees on the roads to deliver more water, hoping to make a profit.
But if the price must remain at a dollar per bottle due to anti-gouging laws, there's less incentive for people to conserve their water, and more incentive for people to stock up "just in case". After all, bottles of water just became a lot more valuable than a dollar to everyone; it's perfectly rational for people to take advantage of that deal. And a lot fewer people from the next town would risk damage to their cars and themselves to meet this need.
This isn't just a story; variants of this has occurred in the wake of natural disasters.
[0]: https://www.cato.org/regulation/spring-2011/problem-price-go...
Cato's mission is to push this ideology. I don't really buy them as a source (but I already know the theory anyway).
(Also, I should admit that I don't have time to read the entire parent comment.)
Those other drives (let's boil it down to "altruism") are perhaps dependable at a small, personal scale, but not at larger scales. Public policy certainly should not be made on the basis of selfless angels working tirelessly for the benefit of all.
> Cato's mission is to push this ideology. I don't really buy them as a source
Well, everyone has an agenda. The original article was "compiled by the progressive Groundwork Collaborative thinktank", so their mission is to push the opposite ideology, I suppose.
> In practice, it doesn't work out so well
I would love to read your factual counterpoints where it didn't work out so well. I promise I'll read it even if it's long ;-)
They don't boil down to anything, nor are they necessarily altruistic. You are a human too! You must feel those other drives instrinsically. Almost all people are more driven by other things than greed and profit-seeking.
You probably live in a democracy, whose foundation is liberty and justice for all, not profit-seeking and greed. It's the most successful form of government in human history, with no competition.
> Public policy certainly should not be made on the basis of selfless angels working tirelessly for the benefit of all.
It shouldn't be made on the basis of any extreme or strawperson.
> Well, everyone has an agenda.
To greatly varying degrees. Everyone is violent, but some will never touch you and some will kill you. Everyone is a liar, but some you can trust and some you can't.
One of the greater correlations on maternal happiness is whether she has access to supportive childcare (whether self or govt funded). A single mother, literally "doing it on her own" without any outside help is perhaps more likely to be most-miserable.
It would make sense to me that if our Oligarchies want to increase population replacement (fertility) rates, perhaps they ought'a consider excess profit-seeking outside of child-rearing products; an increase to publicly-funded daycares would definitely help.
¢¢
If you don't value the lives of Women, that's a much easier, cheaper, and more effective "solution" to birth rates. It's also popular enough to enough Americans to be the explicit plan/goal/effort of the Republican party in many states.
It's much easier to exploit a worker that grew up in a poor family too.
[edit: clarity, tone, and added the below]
3.4 - 1 = 2.4% increase in profits/revenue for corporations while consumers see a 3.4% increase in costs...
The increase of the M2 money supply is also completely irrelevant. Sure there's more "Money" floating around out there, but as with all other forms of wealth, the vast majority of it is concentrated in the pockets of relatively few wealthy individuals, not in the pockets of the many millions of regular folks who are actually buying diapers. Talking averages in the context of individual wealth and consumer spending is also utterly useless, as it would be far more useful to talk about the wealth and spending habits of the median consumer, but that would obviously show that the typical regular person living out here in the real world does not in fact have "40% more money" in their pockets to spend on diapers or groceries. If anything they have LESS money now than before all that new money flooded into the system, as the rich have gobbled up damn near the entirety of all that "New money" yet are still putting the screws the the masses with their shameless, greedy profiteering.
Money is artificial, and whatever its price is is artificial.
In an environment with too much money, of course corporations are going to have high profit margins! But those profits will also go back into the economy in the form of purchases or capital or hiring or etc. All of which will drive inflation.
In an inflationary environment, the kind we haven't had for 40 years (when the report mysteriously ends), profits are always going to look good because you are buying inputs at a lower price level than you are selling the outputs for.
And when there is so much money in the economy, you will be raising prices just to keep products on the shelves. And making input costs drop (because of the massive supply side economic interventions) will only leave more money in the economy. Consumer spending is already at an all-time high - we're at new price levels given the quantity of money and there's no pressure to start dropping prices.
> The findings come as the Federal Reserve has hiked interest rates to their highest point in 20 years. The report casts serious doubt on the need for further interest rate hikes, and instead calls for stronger policies to rein in “corporate profiteering”.
Instead of solving the fundamental problems, how about we play a never-ending game of whack-a-mole?
Inflation was a solved problem 40 years. Prices are just a function of how much money is chasing after how many goods. It's always a money supply issue. But we did such a good job of fighting it for so long that we have an entire generation of economists and experts who have had an entire career without ever having to account for inflation.
This begs the question of what the production bottleneck is. The popular answer seems to be monopoly and cartel behavior, but what are the barriers to entry? Is it complexity? Regulation? I understand that someone cant easily spin up a serious Amazon competitor, but what about beef or a can of beans. You wouldn't think the barriers to competition would extend as broadly as the the data suggests
I suspect that the answer is boring - the profitability of making a diaper right now is overstated. It's not possible to make a profit competing with Kirkland Signature at 18c a diaper. And any analysis about the sudden profitability of diaper making is hyperbolic accounting.
Personally, I know I question the value of buying stock when my investment is at risk and I have to pay 40% on any gains.
Go ahead, try to get a diaper on the shelf cheaper than Huggies right now.
Keep in mind, those 18c diapers CostCo sells are made in the same factory as the name brand diapers, are required to be made to equal or better standards, and still make a profit for Costco, about a quarter of their total revenue. Kirkland products are the loss leaders and don't even lose! That's how insane the profit margins are for name brand companies. That's why the Lays potato chips are $7 right now, even though the potatoes are only a few cents more expensive, even though my friend from highschool who literally owns the potato farm IS NOT getting significantly more money, and making potato chips should be an insanely automated process, to the point that if they claim labor costs could account for the price increase, they are lying. When Huggies sells those exact same diapers in a different box for 6 extra cents each, what is that other than naked greed?
Also brand loyalty is insanely sticky. The vast majority of people cannot afford to buy one box of every brand of diapers to try out which actually is better, cannot trust what the box says because American laws allow you to blatantly lie on the packaging and MAYBE see a small fine. So your average person is going to hold on for dear life to any product that actually "works", meaning you can literally extract the brand value for a couple years with zero repercussions.
It's paying for marketing/branding. It's paying for placement in grocery stores. It's paying for the profit margin that the additional intermediaries have that Costco doesn't. It's paying for manufacturer's coupons on the product. It's paying for the "free shipping" on a hugely bulky product from an e-commerce seller.
I buy a lot of store brand stuff, in part because it represents a good value and in part because I don't like paying for the items listed above.
I think this leads to the inverse conclusion.
Consumers are willing to pay a huge premium for name brand huggies and lays, not because they are too stupid or scared to try the cheaper one, but because they can afford it and pay a huge premium to avoid the tiny effort of exploration.
Potato chips aren't a life critical product where you die or starve if no-name brand sucks. The fact that consumers would rather pay $7 per bag than try another says a lot about how much they value their $7.
>When Huggies sells those exact same diapers in a different box for 6 extra cents each, what is that other than naked greed?
Of course. That is the reason anyone makes a diapers in the first place. Nobody is running a non-profit diaper factory. They didnt get more greedy in the last year.
1) Why do consumers tolerate higher prices, when previously they did not?
2) Why aren't new competitors undercutting all these profitable firms?
3) Some propose industry consolidation and monopoly as a cause. Do so many industries truly have conditions that favorable monopoly?
4) Lastly, if new competitors cant compete on price with high margin monopolies, are consumers really better served by more and smaller firms?
I don't have all the answers, but it would be interesting to see an intelligent expiration of them for once.
I don't think Bezos and Musk are eating all the eggs and butter, driving up the price.
This seems like the only explanation given that a minority of consumers cant eat all the eggs, beans, and produce to drive the market.
E.g. profits aren't just coming form raising the price of subsistence rice and beans, but also fillet minion.
The person you were responding to was arguing that that something has changed in the world. It seems you agree and think it is consumer expectation
If they were truly inelastic, there would be no limit to prices
If they were
2. Barriers to entry, high startup capital costs (due to high prices of everything), having to compete against implicitly colluding incumbent market players.
3. Under capitalism, ALL industries have conditions that favor monopoly. It arises from regulatory capture and economies of scale naturally. It is the end state of any industry.
4. They aren't. More & smaller firms are a market with perfect competition, but perfect competition also means there's no profit, because revenue = costs. Under this scenario, there will be very little innovation.
All these questions are trivially answered by any Econ undergrad who was actually paying attention during lectures.
1) I think your answer for 1 seems most supported and I dont disagree.
2) If incumbents have sufficiently high margins, eventually there will be enough incentive to overcome startup costs, and compete against collusion.
3) I agree that reg capture and economies of scale favor large incumbents.
4) I think this is the interesting part. are you agreeing that consumer prices are lowest under a monopoly with high margins, but not high enough to enable competition from firms at lower scale ( setting aside issues regulatory capture)? Do you think this is the scenario we are living in? I'm pretty skeptical myself, because in my experience, many industries also have inverse efficiencies of scale that kick in. This means small firms can compete on the margin, and are often bought out by larger but less efficient firms.
I don't think that perfect no-profit competition is realistic model for the world because markets arent static and competition doesn't adjust instantly. That said, you seem to think that perfect competition has little innovation. Are you implying that monopolized markets have more innovation?
Regulatory capture is orthogonal to capitalism. In fact, many of the loudest cheerleaders for capitalism also advocate for fewer regulations, in large part to avoid that exact problem.
Diseconomies of scale are real. There's no evidence to suggest that the terminal state of any industry is a monopoly.
https://groundworkcollaborative.org/wp-content/uploads/2024/...
We are living with the end results of the allowance of company merger after company merger. Capitalism only works when there is considerable competition, and the ability to independently set prices. Only utilities work best with less competition, and require a ton of regulation and huge scrutiny. We should be treating any company that increasingly consumes companies as utilities and limit their ability to arbitrarily raise prices.
I was taught that profitability tends towards zero over time and this is simply something I have not experienced in my lifetime. Something is greatly broken in the modern age when we allow policy to favor incumbents so heavily. There should be company after company sprouting up to take advantage of these profits, and I’m not entirely sure that is happening, despite hearing accounts of record numbers of business started in the last 5 years.
"You can have it in any color you like, as long as it's black." —Ford on Model T?
In response to your regulation proposal, California has one of the most regulated utility energy markets in the country, and prices nearly double the national average.
https://www.eia.gov/electricity/monthly/epm_table_grapher.ph...
As for the can’t compete problem, is there really is a lot of value in working at scale. Some of the earliest antitrust work in the US allowed the railroads to continue to grow in power because they were considered essential and scale was quoted as being a being the reason to let them grow. I think we need a regressive tax against business size (however we define that). Bigger companies should simply be taxed increasingly disproportionate to their size. I think that would encourage smaller companies to make it easier to compete.
>Bigger companies should simply be taxed increasingly disproportionate to their size. I think that would encourage smaller companies to make it easier to compete.
If smaller companies cant compete on price, why would you want them. IF I understand correctly, you suggest adding a deadweight loss on large companies to raise the cost of goods to the point where competitors can enter. This leaves the consumers paying more for goods, not less.
Isn't the purpose of competition to lower the price to consumers?
If monopoly co. can make widgets for $0.80 and sell them for $1.00, but competition can only hope to make them for $1.10, then you would need to tax the monopoly $0.30, for the the competition to even have a shot.
this is all in the context of small companies that cant compete against monopolies due to economies of scale. Of course, the story is different if the small company can compete on manufacturing cost, but are prevented from doing so due to lawyers, legislation, and lucrative buyouts.
Inflation is ONLY caused by fiat currency not backed by anything real; The federal government writing checks for objects/services where the total amount expended exceeds the amount intaken via taxes. Literally any other explanation is incomplete.
In commodity exchange licensed markets, shorts and other market pressures are expected to bring prices back down to equilibria or stabilities around such; but can or do retail consumer buying patterns bring retail prices back down?
No, they do not and cannot, because these are just all secondary effects, not causes.
Imagine if we were all using Bitcoin. Imagine if one person on the Bitcoin network was allowed to not have to expend provide proof of work to produce Bitcoins, but everyone else was. This person began spending extravagantly, creating Bitcoins whenever they wanted to, while everyone else was forced to do a proof of work. Everything downstream becomes a secondary effect, trying to deal with that person's spending.
That is how Fiat currencies work without backing.
Sure there's currently a limit of "21 million bitcoins" but there's only 19 million right now and miners keep minting more so it's currently inflationary. I'm sure those miners won't collude and decide that at 21 million it'd sure be nice if they kept the ability to mint more.
Account addresses (hashes of public keys) will be longer with PQ, so form validation logic will need to be updated to accommodate longer strings.
Anyone can hardfork Bitcoin (or Litecoin) and thereby create a new asset. They don't have to recognize the existing Bitcoin blockchain like e.g. _ Cash and _ Diamond. (Bitcoin did not proactively or responsively protect its trademark.)
For there to be more than 21 million Bitcoin, they would need to hardfork.
Bitcoin is both inflationary and deflationary; while block rewards equitably distribute Bitcoin to miners and thereby increase the [Bitcoin] MSB (Monetary Supply Base), the amount of "burnt" and "lost to the depths" Bitcoin also continues to increase. (Presumably in part due to our shared general incapacity to manage sk/pk keypairs without losing them, even when there's money on it).
So, if USD was suddenly also backed by silver (or lab-grown diamonds), how would that change the relative purchasing power of a dollar?
Instead it is said that we have a petrodollar (or a "narco-oil") state with large standing army to force international trade to use the most stable currency of trade; and how sensitive to the price of commodities like oil is our economic stability?
There were fewer economic calamities in frequency and severity while we were on the gold standard (when we had gold reserve-backed fiat currency), but less growth.
Anyways, which economic effects are secondary when most of economics is nonlinear in that a change in quantity X results in a change in Y results in e.g. "back pressure" on X?
Which are particles and which are quasiparticles from which emergent dynamics can emerge; which are secondary effects? Also, describe international turmoil / [false] information, and commodity prices.
Conflict/Unrest => Price Action => Price Action in other markets => Unsustainable increases in CPI and reductions in PPP