Could you please elaborate? I'm reading his newsletter for quite some time and I'd like to read a rebuttal that's more in depth than just 'that's garbage'.
It's quite sad that this is the level of discourse found on these forums. This place used to be great, but over the last few years I notice more and more of these comments which offer absolutely nothing or proffer misinformation to the reader.
In the context of inflation, the standard party line theses are like this. Right wing: inflation is caused by huge Government spending. Left wing: inflation is caused by a range of factors, and Government spending is just a minor one. The other ones are the supply chain, the emergence of the economy from a crisis, a spike in commodity prices, especially oil, some of which could be attributed to the hurricane Ida that resulted in lots of refineries being shut down, etc. About a month ago another idea was added to this list: inflation is caused by corporate greed. The problem with this idea is that corporate greed is not new. If corporate greed could cause inflation, it would have caused inflation 5 years ago, or 10, or whatever. The proponents of this idea claim that it's the market consolidation that lead to increased pricing power for the corporations, and there's some truth to this, but again, this consolidation did not experience any quantum leap recently.
I think on this topic, the Right wing is absolutely right, the inflation is without a doubt caused by the massive, unprecedented money printing. What they forget is that this money printing started during the previous administration, so there's that.
trump started printing money during an unprecedanted employment and business crisis, airlines and much critical business would have likely collapsed in months without that intervention.
then trump wanted to do it again probably just to get reelected or something dumb but at that point the mid-point of republic thought was not really eager for more stimulus.
and now at this point the economy is fully humming along and there is no employment or business crisis, business actually have more work than they can hire for and yet democrats still want stimulus. so i can only conclude that any stimulus is ostensibly for "crisis" but really its just form of wealth redistribution since stimulus checks go not to the non-rich but will end up being paid for by the rich. so for democrat stimulus is now a form of policy implementation by a precedented and popular mechanism.
I think of government spending as all of the money needed to fund / run the federal government.
While the Fed is printing money and spending that to purchase assets..I wouldn't really put that into the same bucket as Medicare or Military spending..
If only it were still money printing. Those were the good old days, printing money looks like the gold standard compared to what's going on today. Now it's just
The classic argument against monopolies or oligopolies is “predatory pricing”. If the things being priced are components of an inflation index, how does this not contribute to inflation?
> If corporate greed could cause inflation, it would have caused inflation 5 years ago, or 10, or whatever.
The same could be said of government or central bank spending, but the past 15 years in the U.S. and the past 30 years in Japan show that the relationship isn't quite so simple. Yet few people deny that government spending can induce consumer price inflation, so why conclude from effectively the exact same longitudinal data set that corporate pricing power cannot induce consumer price inflation?
In both cases the devil is clearly in the details. If macroeconomics were a solved problem we wouldn't even be having this conversation.
It’s especially weird to call it unsubstantiated when the entire post is a very detailed breakdown of economic methodologies. How much more substance could you ask for?
Sounds like this person is just reacting to the headline and Stoller’s name, or maybe it’s Larry Summers’ alt account.
he posts a couple of tweets and like 2 graphs. I wouldn't call it a very detailed breakdown of anything besides what he happened to be thinking when he wrote it.
I’m not an expert in this topic but to me this kind of seems like a big hand wavy extrapolation & it’s not clear how accurate any of the specific numbers in here are.
In particular the corporate profits being cited are coming from ALL non-financial corporations which is a suspiciously broad data set to use when trying to make an argument about price fixing. As an example if there were a shift in profits from small businesses towards larger corporations driven by pandemic behavior, that would contribute to increasing this.
And are we really supposed to believe that near 0 interest rates and unprecedented levels of quantitative easing have no impact on this?
Another thing that’s still worth consideration is that even if 3% of inflation were attributable to corporate profits (it’s probably safe to say he’s exaggerating this a bit at least), is the real rate of inflation actually 6.8%? Many think this is an understated number and the reality may be in the low double digits. If this were the case, corporate profits would represent a relatively smaller portion of real inflation.
Base inflation is never zero. In the article he mentions the 1.8% average inflation rate, plus 2% attributed to gov't stimulus, and 3% towards corporate profits. That adds up to a 6.8% inflation rate.
It's hard to blame this purely on ZIRP or QE because we've had both for the last ten years, all without any meaningful spike in inflation.
He's stating an opinion which couldn't be proven with data and then just citing some data and calling it incontrovertible. It would be like saying democracy declined due to corporate profits and then showing a poll saying that democracy declined and another graph that corporate profits went up. It's meant to pander people who are going to believe it full well knowing that nothing has been proved.
You cannot prove causality for inflation. Even the things that superficially seem intrinsically linked to inflation like the money supply cannot be proved to account causally for specific inflation. It's a complex system. No one thing causes any other one thing.
So yeah, this is a flaming pile of utter bullshit and Stoller embarrasses himself by putting it out.
If this article indicates the quality of his other work you should stop reading.
Naming Summers over and over again is a red flag for me. I respect the guy. I think he was the last Treasury Secretary to have a balanced budget (Clinton)(?) Dude was vital in mitigating the fallout from the Asian financial crisis. Whatever.
The author seems to focus on corporate profits but fails to slice that by industry… software services are booming.
He explicitly ignores productivity gains. Many companies became more efficient due to the pandemic. I could go on and on here…
The problem with the antitrust narrative is that it will take years to force corporations to break up or do anything about their pricing if that is truly the source of the inflationary pressure. In which case, the Democrats will get crushed in 2022/2024 as inflation will remain high.
Better to go with Summer's approach. At least that offers us some hope of doing something in the short term to tame the beast here.
Best time to plant a tree was 20 years ago, second best time is now. Summers is not the best guy for policy advice, as he's been very lax on the wall street crowd for a long time. This goes back to his time in the Clinton admin where they chose to not regulate OTC derivatives and passage for Gramm-Leach-Bliley.
Anti-trust is just so 19th century. We need something far more simple, proactive, and predictable.
Citizen's dividend paid with windfall taxes.
Like how Canada's new carbon tax works.
Call it "universal basic income" if you want to be edgy.
Let's say the first 30% goes to shareholders. Anything over 30% is a windfall profit.
If corporations can't figure out how to increase spending to keep margins below 30%, too bad. Use it or lose it.
I humbly suggest increasing wages and R&D.
This also allows us to simplify the tax code. No more loop holes, breaks, carve outs, whatever. If you can figure how to spend your revenue, you get to keep it.
This would invite all sorts of workarounds. If accounting tricks and passing money between subsidiaries isn’t enough, then the last resort would be to buy the closest thing to liquid assets they could get away with.
I guess this kind of law would be good for accountants and lawyers but I don’t think it would have much impact beyond that.
Most retail has pretty low margins because you would go out of business pretty quickly otherwise. It's pretty easy to setup a storefront and buy goods from a distributor, low barrier to entry means you can't charge high prices because it's easy to undercut you. Setting up a datacenter or building a competing OS is really difficult and expensive. High barrier to entry gives you high margins because it's difficult to undercut you.
> "Inflation is always and everywhere a monetary phenomenon." - Milton Friedman
This is true in the trivial sense that any time there is inflation, there is an infinite array of alternate monetary policy approaches that could have been pursued under which there would have been (all of) more, less, no, or negative inflation.
But other than that, it is not usefully true, because change in monetary policy is very often not the proximate cause of (increases or other change in) inflation. For instance, in the recent bout of domestic inflation, the proximate cause of inflation (somewhat reductively, as there were more contributors) was the rebound in employment, spending opportunities, and consumer confidence from the general relaxation of COVID control policies.
>Fed money printer the last two years: BRRRRRRrrrrrr
>Guys why is there inflation
Covid, lockdowns, and shortages are all a cover for the banking failures that started again in sept 2019. The fed is funding vanguard and bailing out the banks (Chase biggest recipient of bailout funds), hence why all the property is soaring.
Really? Abundance of capital is impossible? Scarcity is impossible to solve?
Honestly, this is really weird. Especially the zombie company myth. Peace does not make a profit, building weapons is highly profitable. Meanwhile taking care of the elderly or renewable energies have relatively low yields. If you insist that returns must always be positive then expect your society to turn to corruption and war because those are the bastions of eternal profit.
From my perspective, it's the market that is forcing the Fed, not the other way around. In fact, the Fed is so toothless, I don't know why anyone cares about it. The only thing people are justified to be angry about is that land has its own liquidity preference but hey, that problem is how homeowners and real estate investors got rich at the expense of the future generation so it won't be solved.
32 comments
[ 2.9 ms ] story [ 88.3 ms ] threadIn the context of inflation, the standard party line theses are like this. Right wing: inflation is caused by huge Government spending. Left wing: inflation is caused by a range of factors, and Government spending is just a minor one. The other ones are the supply chain, the emergence of the economy from a crisis, a spike in commodity prices, especially oil, some of which could be attributed to the hurricane Ida that resulted in lots of refineries being shut down, etc. About a month ago another idea was added to this list: inflation is caused by corporate greed. The problem with this idea is that corporate greed is not new. If corporate greed could cause inflation, it would have caused inflation 5 years ago, or 10, or whatever. The proponents of this idea claim that it's the market consolidation that lead to increased pricing power for the corporations, and there's some truth to this, but again, this consolidation did not experience any quantum leap recently.
I think on this topic, the Right wing is absolutely right, the inflation is without a doubt caused by the massive, unprecedented money printing. What they forget is that this money printing started during the previous administration, so there's that.
then trump wanted to do it again probably just to get reelected or something dumb but at that point the mid-point of republic thought was not really eager for more stimulus.
and now at this point the economy is fully humming along and there is no employment or business crisis, business actually have more work than they can hire for and yet democrats still want stimulus. so i can only conclude that any stimulus is ostensibly for "crisis" but really its just form of wealth redistribution since stimulus checks go not to the non-rich but will end up being paid for by the rich. so for democrat stimulus is now a form of policy implementation by a precedented and popular mechanism.
I think of government spending as all of the money needed to fund / run the federal government.
While the Fed is printing money and spending that to purchase assets..I wouldn't really put that into the same bucket as Medicare or Military spending..
account *= 10;
The same could be said of government or central bank spending, but the past 15 years in the U.S. and the past 30 years in Japan show that the relationship isn't quite so simple. Yet few people deny that government spending can induce consumer price inflation, so why conclude from effectively the exact same longitudinal data set that corporate pricing power cannot induce consumer price inflation?
In both cases the devil is clearly in the details. If macroeconomics were a solved problem we wouldn't even be having this conversation.
Sounds like this person is just reacting to the headline and Stoller’s name, or maybe it’s Larry Summers’ alt account.
In particular the corporate profits being cited are coming from ALL non-financial corporations which is a suspiciously broad data set to use when trying to make an argument about price fixing. As an example if there were a shift in profits from small businesses towards larger corporations driven by pandemic behavior, that would contribute to increasing this.
And are we really supposed to believe that near 0 interest rates and unprecedented levels of quantitative easing have no impact on this?
Another thing that’s still worth consideration is that even if 3% of inflation were attributable to corporate profits (it’s probably safe to say he’s exaggerating this a bit at least), is the real rate of inflation actually 6.8%? Many think this is an understated number and the reality may be in the low double digits. If this were the case, corporate profits would represent a relatively smaller portion of real inflation.
It's hard to blame this purely on ZIRP or QE because we've had both for the last ten years, all without any meaningful spike in inflation.
You cannot prove causality for inflation. Even the things that superficially seem intrinsically linked to inflation like the money supply cannot be proved to account causally for specific inflation. It's a complex system. No one thing causes any other one thing.
So yeah, this is a flaming pile of utter bullshit and Stoller embarrasses himself by putting it out.
Naming Summers over and over again is a red flag for me. I respect the guy. I think he was the last Treasury Secretary to have a balanced budget (Clinton)(?) Dude was vital in mitigating the fallout from the Asian financial crisis. Whatever.
The author seems to focus on corporate profits but fails to slice that by industry… software services are booming.
He explicitly ignores productivity gains. Many companies became more efficient due to the pandemic. I could go on and on here…
Better to go with Summer's approach. At least that offers us some hope of doing something in the short term to tame the beast here.
Citizen's dividend paid with windfall taxes.
Like how Canada's new carbon tax works.
Call it "universal basic income" if you want to be edgy.
Let's say the first 30% goes to shareholders. Anything over 30% is a windfall profit.
If corporations can't figure out how to increase spending to keep margins below 30%, too bad. Use it or lose it.
I humbly suggest increasing wages and R&D.
This also allows us to simplify the tax code. No more loop holes, breaks, carve outs, whatever. If you can figure how to spend your revenue, you get to keep it.
I guess this kind of law would be good for accountants and lawyers but I don’t think it would have much impact beyond that.
Grocery stores run on <2%.
https://microsoft.gcs-web.com/static-files/2dcc3079-9cbd-40e...
Pfizer Pharmaceuticals. From their last 10-Q, Page 5. 8.1B in net income on 24B in revenue.
https://d18rn0p25nwr6d.cloudfront.net/CIK-0000078003/59601e3...
Most retail has pretty low margins because you would go out of business pretty quickly otherwise. It's pretty easy to setup a storefront and buy goods from a distributor, low barrier to entry means you can't charge high prices because it's easy to undercut you. Setting up a datacenter or building a competing OS is really difficult and expensive. High barrier to entry gives you high margins because it's difficult to undercut you.
"Inflation is always and everywhere a monetary phenomenon." - Milton Friedman
This is true in the trivial sense that any time there is inflation, there is an infinite array of alternate monetary policy approaches that could have been pursued under which there would have been (all of) more, less, no, or negative inflation.
But other than that, it is not usefully true, because change in monetary policy is very often not the proximate cause of (increases or other change in) inflation. For instance, in the recent bout of domestic inflation, the proximate cause of inflation (somewhat reductively, as there were more contributors) was the rebound in employment, spending opportunities, and consumer confidence from the general relaxation of COVID control policies.
>Guys why is there inflation
Covid, lockdowns, and shortages are all a cover for the banking failures that started again in sept 2019. The fed is funding vanguard and bailing out the banks (Chase biggest recipient of bailout funds), hence why all the property is soaring.
Honestly, this is really weird. Especially the zombie company myth. Peace does not make a profit, building weapons is highly profitable. Meanwhile taking care of the elderly or renewable energies have relatively low yields. If you insist that returns must always be positive then expect your society to turn to corruption and war because those are the bastions of eternal profit.
From my perspective, it's the market that is forcing the Fed, not the other way around. In fact, the Fed is so toothless, I don't know why anyone cares about it. The only thing people are justified to be angry about is that land has its own liquidity preference but hey, that problem is how homeowners and real estate investors got rich at the expense of the future generation so it won't be solved.