7 ms·

Greedflation is bullshit because it’s not like companies weren’t greedy in 2019. Inflation has changed between four years ago and today, whatever explanation yo

by ls612 3y ago

Greedflation is bullshit because it’s not like companies weren’t greedy in 2019. Inflation has changed between four years ago and today, whatever explanation you want for that needs to have something changing to cause the inflation. Profit maximization attempts are not one of the things that have changed.

JohnFen 3y ago
Not saying this is the explanation, but here's a possibility. True, greed is a constant, but what companies can get away with isn't. It may be the case that companies can get away with putting the screws to everyone harder now than they could prior to 2020.
adrienthebo 3y ago
Profit maximization attempts have changed; supply chain disruptions provided an opportunity for corporations to increase their prices in unison. Prior to the pandemic there was more risk in unilateral price increases but now companies can look at pricing velocity and effectively work as a cartel without engaging in explicit conspiracy.
- megaman821 3y ago
  Either people have more money to absorb these cost increases or demand for some other non-essential goods is tanking. If it wasn't the government printing a bunch of money and it ending up in people hands to buy essential things, what are the non-essential things that no one is buying anymore?
camgunz 3y ago
Greedflation is the phenomenon whereby corporations increase their prices to chase higher profits, hoping that they can blame it on "inflation". This then intensifies inflation. I think everyone--including people like Jerome Powell--agrees this is happening.
- toomuchtodo 3y ago
  > "If corporate profits were to decline from the extremely high levels that we saw recently, would it be possible to sustain" growth in workers' benefits "even as we get inflation down to the target of 2%?" Democratic Senator Chris Van Hollen asked Powell during the Fed chief's semi-annual testimony before the U.S. Senate Banking Committee. > While that might be difficult in the long run, "over the shorter term though, yes," Powell said, dipping tentatively into a debate that may become more pointed over time depending on how inflation, the job market and the economy evolve. https://www.reuters.com/markets/us/feds-powell-acknowledges-slimmer-corporate-profits-could-help-curb-inflation-2023-03-07/ https://www.reuters.com/markets/us/feds-powell-acknowledges-...
  - octobus2021 3y ago
    In the same article: "Wages affect prices and prices affect wages," Powell said, associating current earnings growth to the current ultra-low unemployment rate of 3.4%, and suggesting the labor market may need to weaken at least somewhat for inflation to fall. meaning that in his opinion inflation is driven by high employment, aka people spending money like crazy because they have more money that they know what to do with, and the solution is to make sure more people are out of work and with less funds to spend. Perfectly logical solution to producer-driven inflation I guess.
    - toomuchtodo 3y ago
      https://www.cnbc.com/2023/04/21/why-economists-are-no-longer-so-worried-about-a-wage-price-spiral.html https://www.cnbc.com/2023/04/21/why-economists-are-no-longer... > The experts were worried about a so-called wage-price spiral. This occurs when workers expect inflation to keep rising, so demand — and achieve — higher salaries to keep up with price rises. Businesses then raise the prices of goods and services to cover higher labor costs, at the same time as workers have more disposable income to increase demand. This creates an inflationary loop, or in the language of economists, “second-round effects.” > But while concerns this time around aren’t totally gone, what’s being discussed more frequently now is the fact that a wage-price spiral has not occurred in the 18 months or so that inflation has been running red-hot in much of the world. > “What we’ve seen in the last year is prices rising very rapidly, but wages have not increased nearly as much, and that’s why we have a cost of living crisis,” Gourinchas said, after noting that core inflation remained high in many countries and in some cases was increasing. > “We should expect wages to catch up eventually and people’s real income to recover,” he said. Real income refers to wages adjusted for inflation, reflecting changes in purchasing power. > But the increase doesn’t present a risk because “the corporate sector has been sitting on pretty comfortable margins,” Gourinchas continued. Businesses’ revenues “have risen faster than costs, and so margins have room to absorb rising labor costs.” Tangentially, Powell cannot destroy aggregate demand via the benchmark rate in a way that materially impacts the unemployment rate due to structural demographics. ~2 million people over the age of 55 die every year in the US. ~3 million Baby Boomers retire every year. 55+ workers clinging to the participation rate is holding a lot of this together. https://www.barrons.com/articles/the-labor-market-bends-toward-scarcity-the-fed-cant-change-that-51670019273 https://www.barrons.com/articles/the-labor-market-bends-towa... https://seekingalpha.com/article/4531829-older-workers-propping-up-us-economy https://seekingalpha.com/article/4531829-older-workers-propp...
majormajor 3y ago
If you want to avoid too much blowback you need a scapegoat. The last few years have provided plenty: * pandemic * supply chain disruptions * shifts from services to goods * shifts back The economy doesn't have enough major players for true perfect competition to exist in most industries. Your costs go up a bit? Why not try to get away with passing on some extra to pad your bottom line as well? Who is going to stop you or call you out on it right now? I'm sure I'm not the only person here who's sat in a meeting for a company where there were high-level individuals talking about "how much can we get away with charging" entirely separately from "what are our raw unit costs."
- pessimizer 3y ago
  > talking about "how much can we get away with charging" entirely separately from "what are our raw unit costs." This is what all rational businesses without real competition do. Using costs to set prices is throwing money away, unless your costs are higher than your prices for a strategic reason and you're calculating how long you can continue doing that before you miss payroll.
  - JohnFen 3y ago
    > This is what all rational businesses without real competition do I disagree with this on two points: not all businesses do this, and this behavior is is not related to whether or not the business is "rational". Some businesses actually do operate in a way that doesn't abuse their customers. Forgoing usurious profit margins doesn't count as "throwing money away" any more than not picking the pockets of people around you counts as "throwing money away".
    - evancox100 3y ago
      Why do you assume that setting a high price or raising prices is "abusing customers"? If customers are paying that price, what's the problem? Are the customers idiots who can't be trusted how to allocate their money? High prices is only "abuse" if there is a monopoly on that good and there is no substitute. Which, yes that is bad, we should stop it. BUT even a true monopoly doesn't explain a generalized increase in prices where consumers do not react to higher prices on A by reducing spending on B. Edit: Of course there is variance in the degree to which owners will pursue profit maximization, up to and including "I am already rich and I will operate this at a loss for the good of the public", but the median (or even 75th percentile) firm I don't think is at "pass all cost savings onto customers even if I'm leaving money on the table."
bryanlarsen 3y ago
According to the Planet Money episode, 60% of inflation was due to profit inflation.
- prepend 3y ago
  What causes profit inflation? Companies are certainly greedy. But usually they can’t raise prices because people can’t pay. Now people can pay, at least for now.

by ls612 3y ago

JohnFen 3y ago

Not saying this is the explanation, but here's a possibility. True, greed is a constant, but what companies can get away with isn't. It may be the case that companies can get away with putting the screws to everyone harder now than they could prior to 2020.

adrienthebo 3y ago

Profit maximization attempts have changed; supply chain disruptions provided an opportunity for corporations to increase their prices in unison. Prior to the pandemic there was more risk in unilateral price increases but now companies can look at pricing velocity and effectively work as a cartel without engaging in explicit conspiracy.

megaman821 3y ago
Either people have more money to absorb these cost increases or demand for some other non-essential goods is tanking. If it wasn't the government printing a bunch of money and it ending up in people hands to buy essential things, what are the non-essential things that no one is buying anymore?

camgunz 3y ago

Greedflation is the phenomenon whereby corporations increase their prices to chase higher profits, hoping that they can blame it on "inflation". This then intensifies inflation. I think everyone--including people like Jerome Powell--agrees this is happening.

toomuchtodo 3y ago
> "If corporate profits were to decline from the extremely high levels that we saw recently, would it be possible to sustain" growth in workers' benefits "even as we get inflation down to the target of 2%?" Democratic Senator Chris Van Hollen asked Powell during the Fed chief's semi-annual testimony before the U.S. Senate Banking Committee. > While that might be difficult in the long run, "over the shorter term though, yes," Powell said, dipping tentatively into a debate that may become more pointed over time depending on how inflation, the job market and the economy evolve. https://www.reuters.com/markets/us/feds-powell-acknowledges-slimmer-corporate-profits-could-help-curb-inflation-2023-03-07/ https://www.reuters.com/markets/us/feds-powell-acknowledges-...
- octobus2021 3y ago
  In the same article: "Wages affect prices and prices affect wages," Powell said, associating current earnings growth to the current ultra-low unemployment rate of 3.4%, and suggesting the labor market may need to weaken at least somewhat for inflation to fall. meaning that in his opinion inflation is driven by high employment, aka people spending money like crazy because they have more money that they know what to do with, and the solution is to make sure more people are out of work and with less funds to spend. Perfectly logical solution to producer-driven inflation I guess.
  - toomuchtodo 3y ago
    https://www.cnbc.com/2023/04/21/why-economists-are-no-longer-so-worried-about-a-wage-price-spiral.html https://www.cnbc.com/2023/04/21/why-economists-are-no-longer... > The experts were worried about a so-called wage-price spiral. This occurs when workers expect inflation to keep rising, so demand — and achieve — higher salaries to keep up with price rises. Businesses then raise the prices of goods and services to cover higher labor costs, at the same time as workers have more disposable income to increase demand. This creates an inflationary loop, or in the language of economists, “second-round effects.” > But while concerns this time around aren’t totally gone, what’s being discussed more frequently now is the fact that a wage-price spiral has not occurred in the 18 months or so that inflation has been running red-hot in much of the world. > “What we’ve seen in the last year is prices rising very rapidly, but wages have not increased nearly as much, and that’s why we have a cost of living crisis,” Gourinchas said, after noting that core inflation remained high in many countries and in some cases was increasing. > “We should expect wages to catch up eventually and people’s real income to recover,” he said. Real income refers to wages adjusted for inflation, reflecting changes in purchasing power. > But the increase doesn’t present a risk because “the corporate sector has been sitting on pretty comfortable margins,” Gourinchas continued. Businesses’ revenues “have risen faster than costs, and so margins have room to absorb rising labor costs.” Tangentially, Powell cannot destroy aggregate demand via the benchmark rate in a way that materially impacts the unemployment rate due to structural demographics. ~2 million people over the age of 55 die every year in the US. ~3 million Baby Boomers retire every year. 55+ workers clinging to the participation rate is holding a lot of this together. https://www.barrons.com/articles/the-labor-market-bends-toward-scarcity-the-fed-cant-change-that-51670019273 https://www.barrons.com/articles/the-labor-market-bends-towa... https://seekingalpha.com/article/4531829-older-workers-propping-up-us-economy https://seekingalpha.com/article/4531829-older-workers-propp...

majormajor 3y ago

If you want to avoid too much blowback you need a scapegoat. The last few years have provided plenty: * pandemic * supply chain disruptions * shifts from services to goods * shifts back The economy doesn't have enough major players for true perfect competition to exist in most industries. Your costs go up a bit? Why not try to get away with passing on some extra to pad your bottom line as well? Who is going to stop you or call you out on it right now? I'm sure I'm not the only person here who's sat in a meeting for a company where there were high-level individuals talking about "how much can we get away with charging" entirely separately from "what are our raw unit costs."

pessimizer 3y ago
> talking about "how much can we get away with charging" entirely separately from "what are our raw unit costs." This is what all rational businesses without real competition do. Using costs to set prices is throwing money away, unless your costs are higher than your prices for a strategic reason and you're calculating how long you can continue doing that before you miss payroll.
- JohnFen 3y ago
  > This is what all rational businesses without real competition do I disagree with this on two points: not all businesses do this, and this behavior is is not related to whether or not the business is "rational". Some businesses actually do operate in a way that doesn't abuse their customers. Forgoing usurious profit margins doesn't count as "throwing money away" any more than not picking the pockets of people around you counts as "throwing money away".
  - evancox100 3y ago
    Why do you assume that setting a high price or raising prices is "abusing customers"? If customers are paying that price, what's the problem? Are the customers idiots who can't be trusted how to allocate their money? High prices is only "abuse" if there is a monopoly on that good and there is no substitute. Which, yes that is bad, we should stop it. BUT even a true monopoly doesn't explain a generalized increase in prices where consumers do not react to higher prices on A by reducing spending on B. Edit: Of course there is variance in the degree to which owners will pursue profit maximization, up to and including "I am already rich and I will operate this at a loss for the good of the public", but the median (or even 75th percentile) firm I don't think is at "pass all cost savings onto customers even if I'm leaving money on the table."

bryanlarsen 3y ago

According to the Planet Money episode, 60% of inflation was due to profit inflation.

prepend 3y ago
What causes profit inflation? Companies are certainly greedy. But usually they can’t raise prices because people can’t pay. Now people can pay, at least for now.