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"private sector profits as a main driver of inflation" How can profits drive inflation. Profits have no form. They're just an accounting thing, a calculated va

"private sector profits as a main driver of inflation" How can profits drive inflation. Profits have no form. They're just an accounting thing, a calculated value: the difference between revenue and costs.

maria2 4y ago
The article states plainly they mean margin expansion. Comments like this always perplex me. Did you read the article? If yes, what other possible interpretation is there? If no, why comment a question like this that would most likely be clarified in the article?
vineyardmike 4y ago
> How can profits drive inflation If every business decides to arbitrarily double their profit margin, then prices will rise, but none of that price rise goes to salaries, nor cost of materials, or anything else but a corporate bank account. This effectively drains money from consumers, without returning anything to them via salaries.
- finspeech 4y ago
  Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, even if your assumption is granted, it would ultimately have no effect on consumers as a whole. So, assuming businesses are more profitable, they ultimately have 2 things they could do with that extra profit: 1. Hoard it and do nothing with it 2. Invest it In the case of 1, doing this is tantamount to taking money out of circulation (i.e. lowering supply). When the supply is lowered then everyone else’s purchasing power increases which is a benefit to them. In the case of 2, investing it, either by starting new businesses or loaning it, means that they are effectively redistributing that money to others in the form of wages. Which is beneficial to workers who also happen to be consumers.
  - ydlr 4y ago
    All of this is true is a company rises prices without affecting the behavior of others. When suppliers notice their customers raising prices, they raise prices to capture some of that increase. Likewise, workers will try to increase wages. The result is a profit-price spiral that gets misdiagnosed as wage-price spiral.
    - finspeech 4y ago
      I’ll grant this, but no matter what it’s called, ultimately no group (consumer vs. business) is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers What keeps this from happening, I think, is the presence of competition which would stop both cohorts, workers and businesses, from increasing their prices indefinitely
      - vineyardmike 4y ago
        > ultimately no group is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers Except that wages tend to change less fluidly than prices so there’s usually a lag resulting in less purchasing power for consumers.
        finspeech 4y ago
        Yes that is true, but under the assumption that prices are only raising due to corporations increasing them, then my original post comes into play where for everyone that is worse off, there is someone necessarily better off. Thus the consumer as a whole is unaffected. Because again, if that money is hoarded then that means the hoarder is consuming less and thus supplies are increased for everyone else. Or they are investing and just spending that money into the hands of a different group
      - ydlr 4y ago
        > I’ll grant this, but no matter what it’s called, ultimately no group (consumer vs. business) is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers In the long-term, yes. In the moment, the experience of rapidly rising prices really sucks. It doesn't occur smoothly or evenly. > What keeps this from happening, I think, is the presence of competition which would stop both cohorts, workers and businesses, from increasing their prices indefinitely You are absolutely right. And inadequate competition in many sectors is definitely a contributor to current inflation.
- rahimnathwani 4y ago
  "If every business decides to arbitrarily double their profit margin" Increasing profit margin requires either increasing price per unit or decreasing cost per unit. Decreasing cost per unit doesn't affect consumer prices. Increasing price per unit would send customers to competitors. Only a monopolist can just 'decide' to double their profit margins.
  - vineyardmike 4y ago
    > Increasing profit margin requires either increasing price per unit or decreasing cost per unit. Literally, the article in question stated that price per unit has been rising while costs stayed the same. > Increasing price per unit would send customers to competitors. Not if competitors did it too. > Only a monopolist can just 'decide' to double their profit margins. No. Or at least we’d have to broaden the definition of monopoly. Eg my local grocery store can raise prices a lot (maybe 25% even) before the cost compels me to drive to a farther-away store, but even then I’d assume the other stores were higher and not bother. Maybe it’s a monopoly in the sense “the only grocery store vineyardmike can walk to” but it’s hardly a monopoly. Relatedly, California has announced they’re suing big oil companies for all raising prices without seeing a cost increase, and there are national politicians that want to fix the price of oil to cap its profit margins short term in response to the price increases in 2022 (which are unrelated to the cost of producing oil).
    - finspeech 4y ago
      Increased profit margins can be entirely explained by an increase in the money supply (remember those pandemic stimulus checks). Supply of goods stayed the same, or even decreased as people stopped working and producing, and the supply of money increased. More dollars chasing the same (or less) amount of goods. That alone can explain increased profit margins. If you’re claiming corporate greed or monopolistic abuse then you must explain why these companies weren’t doing this all along. Why have they all decided to increase their prices together all of the sudden? Occam’s razor applies here. Now let’s walk through how price increases actually occur. During the pandemic, people started buying out all the toilet paper at their local grocery store. When this happens, what does the grocer do? They put in an even larger order in for more toilet paper than they usually do as they see they are selling out quickly. After all they want to make sure they are stocked up for their customers. Well, all the other grocers around the country and the world are doing the same thing. Unfortunately, the TP co. only has so much supply and production capacity, so they sell to the highest bidder. Now the grocery stores that were able to procure the TP, had to pay a higher price than usual. Of course they want to make a profit so they will have to increase the prices they charge to customers. And if people are spending more money on TP, then that means that have less money to spend on something else. So just because one industry sees increased profits, doesn’t mean they all do. In fact, it means other industries see lower profits. Now apply this dynamic to the oil market/industry. And California seems to be uniquely an outlier in terms of gas prices compared to the rest of the country. Is it either a.) oil companies are extorting Californians for some reason, or b.) onerous regulations California has put on fossil fuels and oil companies that has cause the price of oil to be so high compared to other states? Again, Occam’s razor

maria2 4y ago

The article states plainly they mean margin expansion. Comments like this always perplex me. Did you read the article? If yes, what other possible interpretation is there? If no, why comment a question like this that would most likely be clarified in the article?

vineyardmike 4y ago

> How can profits drive inflation If every business decides to arbitrarily double their profit margin, then prices will rise, but none of that price rise goes to salaries, nor cost of materials, or anything else but a corporate bank account. This effectively drains money from consumers, without returning anything to them via salaries.

finspeech 4y ago
Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, even if your assumption is granted, it would ultimately have no effect on consumers as a whole. So, assuming businesses are more profitable, they ultimately have 2 things they could do with that extra profit: 1. Hoard it and do nothing with it 2. Invest it In the case of 1, doing this is tantamount to taking money out of circulation (i.e. lowering supply). When the supply is lowered then everyone else’s purchasing power increases which is a benefit to them. In the case of 2, investing it, either by starting new businesses or loaning it, means that they are effectively redistributing that money to others in the form of wages. Which is beneficial to workers who also happen to be consumers.
- ydlr 4y ago
  All of this is true is a company rises prices without affecting the behavior of others. When suppliers notice their customers raising prices, they raise prices to capture some of that increase. Likewise, workers will try to increase wages. The result is a profit-price spiral that gets misdiagnosed as wage-price spiral.
  - finspeech 4y ago
    I’ll grant this, but no matter what it’s called, ultimately no group (consumer vs. business) is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers What keeps this from happening, I think, is the presence of competition which would stop both cohorts, workers and businesses, from increasing their prices indefinitely
    - vineyardmike 4y ago
      > ultimately no group is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers Except that wages tend to change less fluidly than prices so there’s usually a lag resulting in less purchasing power for consumers.
      - finspeech 4y ago
        Yes that is true, but under the assumption that prices are only raising due to corporations increasing them, then my original post comes into play where for everyone that is worse off, there is someone necessarily better off. Thus the consumer as a whole is unaffected. Because again, if that money is hoarded then that means the hoarder is consuming less and thus supplies are increased for everyone else. Or they are investing and just spending that money into the hands of a different group
    - ydlr 4y ago
      > I’ll grant this, but no matter what it’s called, ultimately no group (consumer vs. business) is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers In the long-term, yes. In the moment, the experience of rapidly rising prices really sucks. It doesn't occur smoothly or evenly. > What keeps this from happening, I think, is the presence of competition which would stop both cohorts, workers and businesses, from increasing their prices indefinitely You are absolutely right. And inadequate competition in many sectors is definitely a contributor to current inflation.
rahimnathwani 4y ago
"If every business decides to arbitrarily double their profit margin" Increasing profit margin requires either increasing price per unit or decreasing cost per unit. Decreasing cost per unit doesn't affect consumer prices. Increasing price per unit would send customers to competitors. Only a monopolist can just 'decide' to double their profit margins.
- vineyardmike 4y ago
  > Increasing profit margin requires either increasing price per unit or decreasing cost per unit. Literally, the article in question stated that price per unit has been rising while costs stayed the same. > Increasing price per unit would send customers to competitors. Not if competitors did it too. > Only a monopolist can just 'decide' to double their profit margins. No. Or at least we’d have to broaden the definition of monopoly. Eg my local grocery store can raise prices a lot (maybe 25% even) before the cost compels me to drive to a farther-away store, but even then I’d assume the other stores were higher and not bother. Maybe it’s a monopoly in the sense “the only grocery store vineyardmike can walk to” but it’s hardly a monopoly. Relatedly, California has announced they’re suing big oil companies for all raising prices without seeing a cost increase, and there are national politicians that want to fix the price of oil to cap its profit margins short term in response to the price increases in 2022 (which are unrelated to the cost of producing oil).
  - finspeech 4y ago
    Increased profit margins can be entirely explained by an increase in the money supply (remember those pandemic stimulus checks). Supply of goods stayed the same, or even decreased as people stopped working and producing, and the supply of money increased. More dollars chasing the same (or less) amount of goods. That alone can explain increased profit margins. If you’re claiming corporate greed or monopolistic abuse then you must explain why these companies weren’t doing this all along. Why have they all decided to increase their prices together all of the sudden? Occam’s razor applies here. Now let’s walk through how price increases actually occur. During the pandemic, people started buying out all the toilet paper at their local grocery store. When this happens, what does the grocer do? They put in an even larger order in for more toilet paper than they usually do as they see they are selling out quickly. After all they want to make sure they are stocked up for their customers. Well, all the other grocers around the country and the world are doing the same thing. Unfortunately, the TP co. only has so much supply and production capacity, so they sell to the highest bidder. Now the grocery stores that were able to procure the TP, had to pay a higher price than usual. Of course they want to make a profit so they will have to increase the prices they charge to customers. And if people are spending more money on TP, then that means that have less money to spend on something else. So just because one industry sees increased profits, doesn’t mean they all do. In fact, it means other industries see lower profits. Now apply this dynamic to the oil market/industry. And California seems to be uniquely an outlier in terms of gas prices compared to the rest of the country. Is it either a.) oil companies are extorting Californians for some reason, or b.) onerous regulations California has put on fossil fuels and oil companies that has cause the price of oil to be so high compared to other states? Again, Occam’s razor