5 ms·

Here is the "analysis" in question: https://australiainstitute.org.au/wp-content/uploads/2023/02/Profit-Price-Spiral-Research-Report-WEB.pdf https://australiai

by Aunche 4y ago

Here is the "analysis" in question: https://australiainstitute.org.au/wp-content/uploads/2023/02/Profit-Price-Spiral-Research-Report-WEB.pdf https://australiainstitute.org.au/wp-content/uploads/2023/02... It never actually explains what exactly a "profit-price spiral" is. Even if company profits are to blame for inflation, the only solution that central bankers have at their disposal is to increase interest rates to cool aggregate demand. This is why we leave central banking to technocrats rather than people with a political agenda.

Grimburger 4y ago
The Australia Institute is a thinktank, funded by the Greens. The conclusion is already foregone, they work backwards from there, it's like asking ASPI about defense spending.
- JumpCrisscross 4y ago
  > Australia Institute is a thinktank, funded by the Greens Source? If true, this doesn’t belong on HN.
  - thundergolfer 4y ago
    Ok, but most of the economic content posted here is funded by groups and individuals far worse than The Greens. What kind of analysis would you find independent enough to pass muster?
    - deleted 4y ago
      [deleted]
  - gruez 4y ago
    https://en.wikipedia.org/wiki/The_Australia_Institute https://en.wikipedia.org/wiki/The_Australia_Institute >The Australia Institute is a left-wing[2] public policy think tank based in Canberra, Australia [...] >The Australia Institute claims to not accept donations or commissioned work from political parties.[51]
    - Grimburger 4y ago
      They don't publish who funds them, at least ASPI is open about their money coming from overseas weapons manufacturers.
      - trog 4y ago
        So how do you know they are funded by the Greens?
  - Khaine 4y ago
    This doesn't belong on HN, because its garbage analysis. From their 'analysis': "Record profits on petroleum and mining activities (reinforced by a spike in global oil and gas prices following the invasion of Ukraine) led this surge, but the overall corporate sector experienced the most rapid growth in profits of any comparable period in 35 years." So because of global shortages, commodity prices reached record highs, and companies <b>which are price takers<b> benefited from that, is now suddenly corporate greed? BHP doesn't set the price for Iron Ore, the market does. BP doesn't set the price for Oil or Natural Gas, the market does. When you cut off Russia who are a key supplier of those goods, that creates shortages and causes prices to spike. This means companies which extract those goods will make more money as long as costs remain the same.
    - thomjrob 4y ago
      "There are shortages, but if everything remains the same, they make more money" ??? That's a whack thing to say with a straight face.
      - gruez 4y ago
        Presumably you think this is "whack" because you feel it's unfair that companies are making more in revenue without a corresponding increase in expenses. What about the reverse situation? ie. there is an oversupply/demand collapse, prices go down, but their input expenses stay the same so they make less money. We're seeing this in the semiconductor industry. Should we stand with them in solidarity by continuing to pay pre-collapse prices, and have internet commentators point out how it's "whack" for them to rake in less money even though their expenses hasn't dropped?
      - makomk 4y ago
        It really isn't, publications like the Guardian have just misled people about how the economy works and why corporations make profits in situations like this. It's basically a direct consequence of two things: people cannot buy stuff unless it's actually available to buy, and money does not disappear when it's spent. This means that when there's not enough stuff available to buy, everyone bids up prices until demand meets supply again, with the money ending up as profits at whatever parts of the supply chain are most constrained. This is a perfectly reasonable place for it to end up: those companies are actively helping make the problem less bad by existing and investing in production at the level they did, it incentivises more such investment, and - most importantly - limiting corporate profits and price increases cannot prevent people from becoming worse off in real terms because the amount they buy is still limited to what's actually being produced.
opportune 4y ago
I’m a formerly-hardcore (now kinda softcore) leftist and it bothers me to no end when leftwing parties ignore the huge body of economic research/literature/education in market economies to try to push some agenda. A profit-price spiral makes no sense as a concept without widespread collusion. Let me phrase what they are observing in a way that is actually based in market economics: when the monetary supply increases without actual productive increases in supply (due to things like QE, dovish monetary policy, stimulus) it leads to inflation. Inflation in both wages and good/services prices is not uniform - if you gave every billionaire $100mm you would see different effects than if you gave every person $1k. What we’ve seen in a lot of economies is that inflation lately has shown up very quickly in consumer goods. You cannot necessarily increase the supply of consumer goods quickly - the supply is inelastic in the near term, especially since unemployment is low. As a business, if you are constantly running out of the supply of some good priced at $X it’s a pretty sure sign your prices are too low and you’re leaving money on the table - so business raise prices on those goods. And with very low unemployment rates, businesses cannot easily drive those profits into expanding their business because it’s hard to hire new people. Of course, these business have also had to pay employees more and pay more for the goods they sell. But if the market price increases outpace those increases you get profits, and with low unemployment, those profits have nowhere to go except shareholders (or maybe M&A). The businesses would not just pay their workers more because they don’t know what to do with their profits - the entire reason they started a for-profit business was for profit so it’s fairyland thinking that the money would go anywhere else.
notahacker 4y ago
If we assume what a "profit-price spiral" is by analogy to "wage-price spiral" it has an obvious theoretical problem. Wage price spirals happen because [when the economy is operating near short term capacity], when the cost of living goes up, workers are able to demand and get more money, but that in turn leaves all firms incentivised to put their prices up some more. On the other hand, when prices go up, profits go up... and then firms don't really have any incentive to put their prices up any more because most of that profit isn't finding its way into their customers' pockets (that's a reason for Australians to be concerned about the welfare implications, but it isn't a "spiral"). Companies don't index their prices to average profit levels either. I guess second order effects could include B2B companies and companies selling luxuries to recipients of executive bonuses and massive dividend payouts putting up their prices, but I'm not sure you get an economy-wide "spiral" from that in theory or practice...

by Aunche 4y ago

Grimburger 4y ago

The Australia Institute is a thinktank, funded by the Greens. The conclusion is already foregone, they work backwards from there, it's like asking ASPI about defense spending.

JumpCrisscross 4y ago
> Australia Institute is a thinktank, funded by the Greens Source? If true, this doesn’t belong on HN.
- thundergolfer 4y ago
  Ok, but most of the economic content posted here is funded by groups and individuals far worse than The Greens. What kind of analysis would you find independent enough to pass muster?
  - deleted 4y ago
    [deleted]
- gruez 4y ago
  https://en.wikipedia.org/wiki/The_Australia_Institute https://en.wikipedia.org/wiki/The_Australia_Institute >The Australia Institute is a left-wing[2] public policy think tank based in Canberra, Australia [...] >The Australia Institute claims to not accept donations or commissioned work from political parties.[51]
  - Grimburger 4y ago
    They don't publish who funds them, at least ASPI is open about their money coming from overseas weapons manufacturers.
    - trog 4y ago
      So how do you know they are funded by the Greens?
- Khaine 4y ago
  This doesn't belong on HN, because its garbage analysis. From their 'analysis': "Record profits on petroleum and mining activities (reinforced by a spike in global oil and gas prices following the invasion of Ukraine) led this surge, but the overall corporate sector experienced the most rapid growth in profits of any comparable period in 35 years." So because of global shortages, commodity prices reached record highs, and companies <b>which are price takers<b> benefited from that, is now suddenly corporate greed? BHP doesn't set the price for Iron Ore, the market does. BP doesn't set the price for Oil or Natural Gas, the market does. When you cut off Russia who are a key supplier of those goods, that creates shortages and causes prices to spike. This means companies which extract those goods will make more money as long as costs remain the same.
  - thomjrob 4y ago
    "There are shortages, but if everything remains the same, they make more money" ??? That's a whack thing to say with a straight face.
    - gruez 4y ago
      Presumably you think this is "whack" because you feel it's unfair that companies are making more in revenue without a corresponding increase in expenses. What about the reverse situation? ie. there is an oversupply/demand collapse, prices go down, but their input expenses stay the same so they make less money. We're seeing this in the semiconductor industry. Should we stand with them in solidarity by continuing to pay pre-collapse prices, and have internet commentators point out how it's "whack" for them to rake in less money even though their expenses hasn't dropped?
    - makomk 4y ago
      It really isn't, publications like the Guardian have just misled people about how the economy works and why corporations make profits in situations like this. It's basically a direct consequence of two things: people cannot buy stuff unless it's actually available to buy, and money does not disappear when it's spent. This means that when there's not enough stuff available to buy, everyone bids up prices until demand meets supply again, with the money ending up as profits at whatever parts of the supply chain are most constrained. This is a perfectly reasonable place for it to end up: those companies are actively helping make the problem less bad by existing and investing in production at the level they did, it incentivises more such investment, and - most importantly - limiting corporate profits and price increases cannot prevent people from becoming worse off in real terms because the amount they buy is still limited to what's actually being produced.

opportune 4y ago

I’m a formerly-hardcore (now kinda softcore) leftist and it bothers me to no end when leftwing parties ignore the huge body of economic research/literature/education in market economies to try to push some agenda. A profit-price spiral makes no sense as a concept without widespread collusion. Let me phrase what they are observing in a way that is actually based in market economics: when the monetary supply increases without actual productive increases in supply (due to things like QE, dovish monetary policy, stimulus) it leads to inflation. Inflation in both wages and good/services prices is not uniform - if you gave every billionaire $100mm you would see different effects than if you gave every person $1k. What we’ve seen in a lot of economies is that inflation lately has shown up very quickly in consumer goods. You cannot necessarily increase the supply of consumer goods quickly - the supply is inelastic in the near term, especially since unemployment is low. As a business, if you are constantly running out of the supply of some good priced at $X it’s a pretty sure sign your prices are too low and you’re leaving money on the table - so business raise prices on those goods. And with very low unemployment rates, businesses cannot easily drive those profits into expanding their business because it’s hard to hire new people. Of course, these business have also had to pay employees more and pay more for the goods they sell. But if the market price increases outpace those increases you get profits, and with low unemployment, those profits have nowhere to go except shareholders (or maybe M&A). The businesses would not just pay their workers more because they don’t know what to do with their profits - the entire reason they started a for-profit business was for profit so it’s fairyland thinking that the money would go anywhere else.

notahacker 4y ago

If we assume what a "profit-price spiral" is by analogy to "wage-price spiral" it has an obvious theoretical problem. Wage price spirals happen because [when the economy is operating near short term capacity], when the cost of living goes up, workers are able to demand and get more money, but that in turn leaves all firms incentivised to put their prices up some more. On the other hand, when prices go up, profits go up... and then firms don't really have any incentive to put their prices up any more because most of that profit isn't finding its way into their customers' pockets (that's a reason for Australians to be concerned about the welfare implications, but it isn't a "spiral"). Companies don't index their prices to average profit levels either. I guess second order effects could include B2B companies and companies selling luxuries to recipients of executive bonuses and massive dividend payouts putting up their prices, but I'm not sure you get an economy-wide "spiral" from that in theory or practice...