(1) Rising prices in systemically significant upstream sectors due to commodity market dynamics or bottlenecks create
windfall profits and provide an impulse for further price hikes.
(2) To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to
bottlenecks, amplify price pressures.
(3) Labor responds by trying to fend off real wage declines in the conflict stage.
So they say that the sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions.
Wouldn’t (1) be mitigated somewhat if there was more competition in those sectors? Competition should bring windfall profits back in line, but not when many sectors reflect duopolies or oligopolies.
I think rather than pricing regulation we just need better antitrust enforcement.
Except windfall profits, free money for those upstream the chain due to low Fed rates, and weak regulatory environments have all encouraged massive centralization.
Those M&A have devastated so many markets and companies, IMHO.
The former. A lot of the industries where absurd amounts of profiteering go on (especially retail) have nearly zero regulations - you don't need a license to start up a supermarket.
The problem is that the the big stores (Walmart, Amazon, Costco) are too big to compete against: they can afford loss leaders or, hell, even entire loss stores simply to drown the entirety of smaller stores in dozens of miles around them, and on the purchasing side they can demand insane rebates and other terms (e.g. payment schedules >> 30 days) from vendors which makes it fundamentally impossible for smaller stores to get the same terms.
Regulatory capture is the least of the anti-competitive forces running around your typical market. Network effects, two sided markets, vertical and horizontal integration, brand loyalty, M&A, economies of scale, and even the structure of property ownership itself can have major anticompetitive effects. Yes, regulatory capture belongs on the list too -- but as a bit player, not as the prime evil.
Some of these forces are things we want to encourage (economies of scale), some of them we probably have to allow, and some of them are pure emergent evil that we have "collectively" decided not to mitigate.
Deregulation only address one of these forces. It's not a useless idea, but it gets wildly over-promoted by people who A. can't bring themselves to admit that the free market would ever create emergent bad incentives on its own or B. don't want the government to stop them from exploiting said bad incentives.
Competition but also low price of entrance/ability to enter.
If raising capital for competitors is hard (see current financial situation) then even without a trust, the competing entities benefit from raising price as the demand is captive.
Competition by itself is not a solution. You need new competition. The current state of financing a new entrant is what needs to be looked at.
Capital has been incredibly cheap for a decade or so yet we've seen consolidation in most markets as opposed to increased competition, for a large parts because it was incredibly cheap to buy out your competitors, and it allowed blitzscaling practices.
If capital is expensive, being a good business with profits becomes a competitive advantage again, so I expect more competitors in the long term.
Some sectors may have decent competition, but external factors may be choking supply.
For example, if there's a sudden spike in demand for, I don't know, remodeling homes, even perfectly competitive suppliers will take time to increase production.
Pine trees take time to grow before they can become 2x4s I suppose.
Then there's the question of if they believe the spike is temporary, in which case it may be too costly to expand production enough to restore the old equilibrium.
In addition, my understanding is that there were a lot of skilled workers let go during the pandemic that aren't (or won't) come back, which is a huge choking point.
This is always curious, but doubly so in times where "good pay deal" means the net pay cut for 2022/23 is just a single digit %. At the same time some people yell about pay increases causing inflation - triply curious.
That's not necessarily a problem you can do much about though, it's just the nature of markets (and life in general) where some things just move slowly. Supply trails demand or investment in supply was over-optimistic vs actual demand.
There's some ways to deal with it like futures contracts and strategic reserves... or more aggressive gov intervention like how Quebec built their awful maple syrup cartel via forcing companies to stockpile supply centrally. But mostly there's some hard limits to how much you can optimize a market.
Demand spikes or supply bottlenecks are the normal drivers of price increases. Market and competition doesn't mean "stable prices for all eternity", but "the market is the best tool we currently have to dynamically adjust to a changing environment".
Following your example, a lack of 2x4 has to drive timber prices up, so the scarce resource is used where is most needed: to the people who is paying the higher prices. If that people is wrong in their predictions, they will suffer the consequences. The market dynamics should 1) allocate the current available 2x4 where they are more needed, 2) accelerate the production of 2x4 that previously were non profitable (e.g. remote forests) and 3) explore possible substitutes previously non profitable.
But when you study inflation history, you notice it's always blamed on the business raising prices. With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall. If prices are increasing everywhere, someone is playing foul with money. Sometimes and for short periods it can happen a credit expansion or crunch (imagine people hoarding or spending gold thus varying the amount of money in circulation), but that won't extend for long unless someone is minting gold coins with some cooper in them.
> With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall
I don't think this is evident at all - a supply shortage will still cause a price increase? Nothing in the classical demand curve model depends on money supply. You can get shortages that increase prices in one area and change the distribution of consumption and investment. The business cycle is still real, and indeed theory was developed around it, even on the gold standard.
But this is something missed by all sorts of hard money advocates. Using bitcoin can't stop OPEC from driving up the price of oil, for example.
Covid was a very special an unique event. But even then the following prices plumeted: hotels, travels, vacations, etc. And in general, the CPI for the hardest part of the event (march, april and may of 2020) was negative: demand fell even more than the offer, and prices went down.
Duo or oligopolies would be nice to have. We have monopolies, at the owner layer. That they own several buisnesses in the same sector, to placate monopoly regulations, does not reduce the lack of competition.
Im continously suprised that people, by assumption of brands and company names assume we still have duopolies or oligopolies.
You can own a whole industry sector without mergers and funny make pretend competition. The competition may hold true for software, because its such a young sector, but for everything else...
How would that look say for Target and Walmart, to pick an example?
Collusion at board level? Or the two sides playing chicken, enjoying the profits and hoping neither does something drastic? It doesn't seem like a stable state but I could see it go on for a bit until there is a correction.
Blackrock mostly sells investment products (although they also own houses through their REIT). Are you sure you don't mean Blackstone? Are you saying that Blackrock owns a stake in most competitors through its index fund holdings?
EDIT: Ah, the "Ownership and transparency" section of the article clarifies.
Not really. The problem there is more sector-wide capacity, not competition - companies have no incentive to drop prices in order to get more business because they're already selling as much as they can produce even at inflated prices and all their competitors are the same - and so long as that capacity problem is still there, it doesn't really matter how many companies it's divided up across.
As far as I can tell, the claims about unchecked corporate pricing power being to blame are only about the steps after that and the companies further down the supply chain that rely on the bottlenecked sectors for their inputs, either directly or indirectly. The argument is that unchecked pricing power, a lack of competition and the knowledge that their competitors are facing the same cost increases allows companies to pass on the costs in full or even pad out prices further and increase their profits.
(Also, a lot of the capacity issues are in fossil fuel production, which the mainstream media and activist investors have been campaigning to further reduce capacity in by trying to end new investment to replace declining wells - and telling people that the only downsides of this are for fossil fuel companies whose profits will reduce. Then they blamed corporate greed when this actually had the effect that basic economics said it would.)
I don't think there's any real relation. The single sector that saw the largest increase in prices were new cars followed closely by used cars. The market for new cars has a dozen or so major global companies and the used car market is about as pure of a market as you can get.
Ultimately it's gigantic corporation vs gigantic corporation. Walmart, Target, Best Buy, Amazon, et. al. aren't being pushed around by suppliers. If there were great margins to be made in manufacturing these companies would (and do) step in with their own branded products.
Anecdotally, I think Covid was like a conductor giving the orchestra a cue to start playing. Everyone ran into supply issues at the same time and naturally raised prices to the new point on the demand curve. Those that didn't see supply issues saw everyone else raising prices and figured why not take some easy money. Even if they wanted more market share they wouldn't have been able to expand production.
IMHO, it also revealed that demand was more inelastic in the short term than expected. Like my kid's frozen waffles went up like 2 bucks for an 8 box over Covid. I pay more than I want to but my demand's pretty inelastic. Not gonna fight my kid on his food choices over 25 cents a day. Eventually that will break and I don't think I'm gonna start the next kiddo on the same habit.
> Everyone ran into supply issues at the same time and naturally raised prices to the new point on the demand curve.
Some fancy pants buying a car with cash at $35,000 over MSRP last year during the new car shortage could be called a "new point on the demand curve." But actually financing a car for that last year? Unless there was an enormous increase last year in down payments, it points to bank shenanigans. Loans typically last longer than a year, and banks look at trends past the year in which they write the loan. Granted $35,000 over MSRP is the worst case I've heard. But the more common case of vehicles financed for 5 - 15k over MSRP for rapidly a depreciating asset is still a problem.
And now, a year later, it seems we're already seeing the other end of those shenanigans-- increasing delinquency levels and banks holding off on repos. Because after repo, the difference between the loan and the actual value of the vehicle is stark for all to see.
I have no idea where this market is going. But greedy dealers and finance depts have added so much energy to "natural" market dynamics that it could push many of the cash-strapped used car dealers out of business. Hell, even Carvana may not have the billions needed to survive this volatility. None of this is good, and it's all based on short term greed with little to no basic oversight last year to stave off the obvious risk.
If that behavior is in the set of "natural market forces" then the term is so broad as to be meaningless-- might as well say "inflation is what it is" at that point.
Basically when inflation hits and input costs rise, prices rise, but by a higher amount.
It's pretty intuitive. If you're going to change the price due to an increase in costs, why not increase it a bit more and then just blame it on inflation?
Or, if costs come down later, why reduce prices unless you have to?
This is why inflation is can be so stubborn, increase costs in a single input can ripple though the system, then cycle back and increase costs even further (say cost of labor).
Wasn't the Fed citing rapid rises in wages as a reason to hike interest rates? Wouldn't that imply that at least for wages, corporate pricing power was overly checked, at least according to the Fed?
You are conflating two separate things. Employees having pricing power in the labor market and corporations having pricing power in the market for the goods they produce are different things and can both be present at the same time. If a company has to raise its wages, but is able to increase its prices by more than that, it can both pay its employees more and make higher profits at the same time.
But only one of those is a case where the federal reserve starts to take action. The degree to which this 6% inflation is treated as an emergency vs the 10% unemployment after '08 is eye opening.
It feels like this is really about disciplining labor, particularly in big tech.
ALSO: if you're willing to put on your tinfoil hat, the SIVB collapse could have potentially reduced competition for top talent in tech in order to continue to drive down prices.
It's also the only one out of the two that is part of the Fed's mandate. Excessive pricing power of corporations is the domain of the FTC. To say they have been ineffective at addressing that would be an understatement, but no conspiracy there.
Whan I put my tinfoil hat on I think that they bailed out the tech industry as returning the favor for the years of cooperation censoring opinions.the government doesn't like.
Which is particularly egreggious if you consider that wages were going up because of a tightening labour market, ie people retiring early in the face of covid, an uptick in long-term illness and disability, as well as excess deaths to the tune of a million people (so far).
In that context, raising interest rates to combat "wage inflation" seems misguided.
That's literally just how banks (and economics) work. Been like this for thousands of years. Every time a loan is issued, dollars are created. https://en.wikipedia.org/wiki/Money_creation
I, too, stopped reading my Econ 101 text book at page 3! There are dozens of us!!!
Inflation can be caused by directly printing money. In modern economies it's more related to things like reserve rates, treasury rates, overnight rates, demand shock, supply constraints, and trusts.
I know you don't deserve engaging with because you probably know you're talking complete and total bullshit, but
> Ukraine (the most corrupt country in eastern Europe)
Belarus? Russia? Moldova? Albania? No?
> a blank check (not a loan) for administrative salaries, women, and vodka.
Women have mostly become refugees because, you know, their country was invaded by a genocidal maniac and his army are committing a bunch of war crimes. Vodka there is little because russians have been stealing farming equipment (alongside the washing machines and toilets).
No, the real reason Ukraine needs as much help as it can get is because it was invaded by a bigger country and it's very existence is at stake. If one has any moral compass, supporting Ukraine is a no brainer, otherwise one is just supporting a genocide either directly (like trolling online) or indirectly through indifference.
Ok, here's my problem: if I go get the US currency volume rates from 2001 to 2023, I get an expected increase in currency of ~7.2%/annum (there are some 5% years; mostly 6.5%s; and, one 15% year). This means the total volume of US currency has grown by a factor of 3.57x from 2001 to 2023. However, over the same time, the CPI has only increased by a factor of ~1.78x. I feel like if "printing money = inflation" then inflation should be more like ... 3.5x?
Maybe ... currency-printing equates to 1/2 its value in inflation. I think that makes for a really complicated story where "printing money" creates values out of thin air? In that sense, doesn't that mean "printing money is good"?
Why are you not mentioning the trillions of dollars printed during Trump's administration for covid relief? I'm not against a discussion on monetary policy but selectively ignoring facts to turn it into partisan bickering isn't helpful.
IMO, the money printed in the Trump admin, which TBF was > 50% of the recent spike in printing, was more justified because it was done in the initial response to COVID when the economic shutdown was necessary and stimulus action absolutely had to be taken. The Biden stimulus, which was passed in early 2021, was after the economy had mostly been reopened, and the remaining lockdowns were unnecessary and ineffective anyway. It was more of a political giveaway than an actual emergency response.
But make no mistake, a dollar printed under Trump was just as inflationary as one printed under Biden, even if it was more justified, and you are right that it should be brought up. IMO its even more important to mention the continuous policy of our government covering its deficits by printing money (QE as they call it) which was started under Bush in 2008 and has continued under every president since.
It goes all the way back to Obama's 2008 policies and fed too. Trump threw it into overdrive with the pandemic (and mysterious August 2019 bank/market crash no one talks about). Biden has just kept the system limping along and done nothing to stop it--the fed just added 300 billion to its balance sheet last week despite swearing they were done doing that!
It started before Biden, but yes: „inflation is a monetary phenomenon“[0]. The idea that corporate greed is variable over time is laughable and a transparent attempt at blaming the „kulaks“.
It hasn't been updated in a long time (and there has been further consolidation), but a site someone built many moons ago to show this based on board of directors membership is https://theyrule.net/
The reality is probably less than 10000 people globally control more than half the wealth in the world, these people control that wealth both individually (billionaires) and professionally (fund managers and board members). This is a result of unequal outcomes from the rise of globalization and the Internet. The world is a more interconnected place, including in finance and business, which squeezes out smaller players and rewards more handsomely cooperation on a global scale.
Nonetheless, all of the evidence, at least in the US, points to small business ownership as being one of the best pathways to financial independence and familial wealth. It is not necessary to create a globally recognized publicly traded company and to become a billionaire to set your family up for success in a way that is not open to most in the world, you can do this simply by finding a niche and excelling in either global niche markets or in your local market.
The dichotomy where many of these same corporations raise prices at levels greater than inflation, while doling out employee "COLA" raises at rates far less than inflation, is pretty stunning.
I wonder what the likelihood is that this comes home to roost for them. It felt like things were headed that way in the early parts of the pandemic, both for lower wage workers and tech workers...when everyone was having trouble hiring.
Even the government is more willing to fight inflation by harming workers than a company's profits.
We'd need more unions - groups with some power over companies who will speak for worker's rights. And while they are starting to proliferate after decades of FUD, their power is also being cut off at the knees by laws that prevent strikes.
It's critical that the jobs be filled, yet those who fill those jobs have no power.
It's better than people being forced to work multiple jobs just to provide the basic necessities for life.
Employee wages are already lagging behind every measure of a employee's worth (productivity, revenue per employee, etc) over time... why do we think it's good policy to fuck them over even more?
Morals matter, even for businesses. Perhaps especially for businesses, given the power imbalance in their favor over ordinary citizens.
There's a difference between policies to increase working-class wages over the long term, & a tight immediate feedback loop. Runaway inflation is a serious deal
Plus if everyone is auto-raising every employee, that would include lots of well to do professionals, not just those struggling
> Plus if everyone is auto-raising every employee, that would include lots of well to do professionals, not just those struggling
Because no professionals are struggling? Given how some 80% of people identify as living month to month, and fewer have 3 or 6 months of emergency funds saved up, that seems like it's absolutely not the case.
And frankly, everyone is ignoring the elephant in the room - corporate profits which are at absurd levels. Dial those back, and suddenly you don't have a feedback loop, since you can increase pay without having to raise prices.
But Marx forbid we slow the growth of shareholder wealth to help society at large.
It’s a factor, but a. How meaningful is it? Does it explain 50% or 5% of price increases B. How sustainable?
With regards to b, It seems like there were two elements at work, 1. People were generally flush with money and could absorb cost increases, and 2. There was a frenzied period of price hikes/volatility, where everything was in motion and I think most people just said “it’s crazy eggs and steak are this expensive, but it is a few extra bucks I can afford right now, and things will eventually calm down”
The combination of the above led to consumer price inelasticity allowing companies to increase price without effecting volume. I suspect that to change in the coming couple of years as consumer balance sheets and employment weaken, and consumers decide to have two egg omelettes instead of three or buy chicken instead of steak.
I have a very hard time believing that most people in the US simply have too much money. I suspect that most people are struggling, and were struggling even before the pandemic and that people's standard of living is declining, their debit is climbing, and they are just a few missed paychecks away from disaster.
I think that as the pandemic situation improved, people were simply desperate for a sense of normalcy and for the things they'd gone without and they spent more than they could afford, even going farther into debt.
It wasn't "but it is a few extra bucks I can afford right now, and things will eventually calm down" it was "this is more than I can afford, but I need it, and I deserve it, and the world is burning anyway so fuck it". I think to a lesser extent that mentality is still going on, but people are suffering heavily under the increased costs of rent, food, and everything else. Evictions and bankruptcies are increasing and homelessness is rising (https://www.huduser.gov/portal/sites/default/files/pdf/2022-...) and has been for years.
I can't say to what extent greed is the cause of inflation, but I'm pretty confident it's a bigger factor than how much money most Americans are comfortably sitting on.
The federal reserve created 20% of all money ever created in the first year of the pandemic [1][2]. Which is absolutely mind blowing to me. The total cost of Covid stimulus was over 5 trillion dollars.
That doesn’t mean all individuals are well off, but there is no doubt that the economy is flush with extra cash. And since the number of physical goods had not changed, that meant inflation. Which honestly nullified any advantage people got from stimulus (which were temporary).
I’m not saying it was evenly spread around, but household net worth increased ~40% between Q4’19 and Q4’21 - that creates a lot of headroom to absorb price increases…
Relevant quote: "In contrast, we argue that the US COVID-19 inflation is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices."
I don't think businesses, or rather the boards and shareholders that run them, care about sustainability - especially if it has a neutral (or, god forbid, negative) impact on short term growth-of-growth or stock prices. If a business goes under because of a lack of sustainable practices, everyone just moves on to a different company.
I'm starting to think that anymore if you want a sustainable business, you can't go public.
In supermarkets I noticed a surplus on top of inflation, and my thought was that people would swallow that because their reference frame for proper pricing was out the door. So they wouldn't notice the surplus, blaming all to inflation. And subsequently getting used to new above-inflation levels as their new reference.
I'd also guess we get supermarket price wars, when inflation get under control, whereby the supermarkets keep their extra margins and pressure the supply chain below to get prices down.
Agree, my point is more that when your personal net worth is +30% there is a very different willingness to absorb a 20% increase on your weekly grocery bill than when your net worth is -30%
Uh that's an accounting change iirc - they included some category worth 10 trn in M1 on that cut-over day, 10 trn/day slope is not an actual change in money supply.
Edit:
> Before May 2020, M1 consists of ... (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.
> Beginning May 2020, M1 consists of ... (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts).
> Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately.
This means the balance of all savings accounts was added to M1 beginning may 2020. If you want to look at "money printed", look at M2. AIUI the definition of M2 was not changed that date and you can indeed see some ~2 trn covid stimulus spread out over a few months in M2.
Ok, assuming that the 11T jump (from 5T to 16T) in May 2020 was entirely due to an accounting change, that still puts us at over roughly 10T today by the former accounting. Or a doubling in 3 years.
Coincidentally there’s been a rough doubling in the size of the Fed’s balance sheet, with a familiar spike in 2020.
Not even a little. Read the notes, they significantly changed what they were measuring in 2020. It added savings accounts and money market accounts in 2020.
When the government decides to print trillions and trillions out of thin air, if the economy isn't forced into an artificial suppression by the same government - then prices reflect the diluted value of the money supply.
An item that costs $1, costs $2 when you double the amount money for the same amount of assets.
its pretty impressive how role of private banks in managing the money supply is never examined. When government is creating new money its always wrong, and when banks create new money its always okay.
Nor is there ever a proposed formula for what the 'correct' money supply should be.
The big critics seem to only be able to come up with Gold standard/bitcoin.
They do not propose how money supply should expand when GDP grows.
They also never talk about relationship between velocity of money and interest rate, and the fact that if velocity of money is low, then the debt of everyone in the economy pile up to infinity, and cause collapse.
They do not address the perverse incentives we have to park vast amounts of money unproductively, instead of investment in the real economy.
Prices reflect the maximum businesses think they can charge consumers without excessively reducing the demand, in order to maximize profits. If you give everyone money, they create stronger demand for products, and if the supply of those isn't increased (or even worse, is decreased), businesses can charge higher prices because the market will bear those higher prices because there is sufficiently high demand relative to supply. Inflation happens when businesses broadly raise prices. Broadly giving people more money can contribute to businesses finding that the market will bear higher prices because people now have more money.
> Inflation happens when businesses broadly raise prices.
Unless you are proposing that every company in the world is secretly conspiring together to raise prices, I assume you agree with me that the actual source of the increase is the huge influx of money supply that governments created and injected into the economy.
Businesses will absolutely adjust their prices to whatever the market will pay. However, they are dependent on (or follow) inflation for the actual pricing numbers.
One of the major US issues was that the vast majority of the $6,100,000,000,000 in funding the last couple years that was added to the money supply was given to the wealthy via ownership in companies. They used it to purchase commodities, houses, stocks, and many other assets causing the producers of those assets to raise prices to adjust for the inflated money supply.
This means we see houses doubling when really, money supply doubled and our purchasing power halved.
The stimulus packages provided for far more than just bank lending. Read some of the bills, there were a lot of projects and spending programs.
Regardless, even it if had only been for banks. Anyone was able to borrow nearly interest free money to turn around and spend.
This means anyone (that was wealthy enough) could take their $100k and borrow an additional $X00k they used to purchase assets. When half the purchasing power of the country does that you suddenly have 2x inflation as there are 2x more purchasers (or 2x more money).
If money is not injected into some static immobile "vault" (the whole point of a bailout or liquidity injection is for it to flow outwards), then it is going to be spent. For example, bailed out companies treat the cash injection similarly to investor cash, to be used. Departments get made, projects get spun up, equipment gets bought. In the case of banks, people get hired, existing employees get raises, liabilities get shored up, and assets get bought, which needed to be bought off of people who owned them or made them. And everyone involved at every point in this chain buys potatoes on the way home.
In a way, yes. People flee into assets and commodities they see as "vaults" when they're uncertain, or that they see as rocket ships when they're greedy; this is why their prices rise. The inflation from the liquidity injections is being contained to those assets. The bursting of the stock and crypto bubbles coincided with the rapid acceleration of inflation as people pulled their money out to both escape the falling knife and spend some of it on what they needed before inflation rose more, a vicious cycle. The effects of those purchases cranked the inflation stove.
> Unless you are proposing that every company in the world is secretly conspiring together to raise prices
Is it really "conspiring" when economists speculate that inflation is coming and businesses fulfill that prophecy to either enrich or insulate themselves? It's not even a stretch, just obvious.
Curious how much inflation would happen if it weren't announced that it's time to do inflation.
An item that costs $1, costs $2 when you double the amount money for the same amount of assets.
This is a common misconception. One big reason it's not true is because the vast majority of the wealth in the economy is stored in assets other than money (real property, stock, bonds, etc.), so doubling the money supply is very different from doubling the amount of wealth everyone has.
Now I imagine some might still be skeptical, but luckily this has been studied, and there are metrics like M2 that represent money supply. If you look at a graph of M2 vs inflation, they look pretty independent, and indeed studies have failed to find any statistically significant correlation between the two.
So what if the money is stored in assets? I don’t think anyone believes arguments like “your basic intuition is wrong, studies have been done, I can’t explain it to you but trust the experts” anymore since COVID.
Secondly, it doesn’t matter where the “wealth” is stored unless it’s sitting in someone’s basement like Scrooge McDuck[0]. The money gets out into the economy through loans and businesses doing business causing prices to rise because there’s more money chasing the same amount of goods.
[0] though, apparently, this is a Silicon Valley thing as was seen by SVB.
You are responding to an off the cuff (and basically correct) remark with a deeply technical disagreement (that isn't incorrect either).
Total money supply means that eg doubling the amount of liquidity does not double the price of items, but printing money can cause inflation on goods depending on where that printed money is absorbed. Making free money for building houses is different then sending a check to every American.. but in practice the Gov did the latter and now eggs are more expensive!
Eggs are more expensive because of bird flu. It's funny but all the 'too much money in the system' people use examples that don't have that as a root cause. The guy with the lumber mill has no way of knowing if it was people with free money building additions, or, as in my area, EVERY business required to put in safety measures to stay open during covid most often made quickly with lumber from home depot that they have to buy no matter the price if they want the government to allow them to stay open. People claim it's too much free money when in fact they are getting windfalls from being basically 'rent seekers' while screaming they promote free market.
We have a pretty good federally produced chart for inflation by sector: https://www.bls.gov/cpi/
Unless you suddenly think "rent seeking" jumped right as the Government happened to start printing more money, it sure looks like inflation tracks quite nicely.
Corporations always raise prices when they can. The question is why they are able to raise prices now to levels they couldn't before, and as always the answer is a mix of government-created moats and monetary inflation.
The "explanation" confuses correlation with causation. It is true that during the pandemic, with two stimulus checks from Trump and one from Biden, average savings increased, and many companies saw that as an excuse to raise prices to try to drain that savings. But that savings was not evenly distributed, and the timeline doesn't quite work. It's a word-association fallacy.
>The question is why they are able to raise prices now to levels they couldn't before, and as always the answer is a mix of government-created moats and monetary inflation.
The study authors have a different answer about why than you do, though. What they are claiming is that in concentrated markets (like most markets are), shocks like the pandemic allow for firms to raise prices beyond their increased costs, and so increase profits. They have a very interesting graph of after tax profit margins showing that firms in the US are more profitable now than they have been for 70 years, in fact.
They point out a correlation. But would all companies (or enough to drive global inflation) have been able to raise prices beyond their increased costs without the massive monetary expansion? Seems unlikely, at least to the extent they have.
It's because companies had an excuse ready and people were desperate. Normally when companies jack up prices too fast people get offended and stop paying, but the pandemic left people needing for things to feel normal and they were desperate for the things they had been denied. That combined with the supply chain problems, which gave companies their first excuse, meant that people spent themselves into record amounts of household debit, but they didn't blame the higher prices on the companies.
Then as inflation increased, companies used that as an excuse too. "We have to raise prices because of inflation! It's not our fault your wages aren't keeping up!" and people believed it even as companies were making money hand over fist and pulling in record profits.
I'd add "a lack of harm to their business when they did raise prices". Before, I believe there was a fear of backlash from the public if prices (and profits) went up too much.
But when Covid lockdowns forced temporary price increases, companies didn't see the backlash. And so they just continue to do it, knowing the average consumer has no choice in many cases.
Mainstream economists try to explain why mainstream economists were wrong about inflation being transitory. They would rather do _anything_ but admit it was a mistake to create all that money during the pandemic.
We have limited competition and call it a free market, when really it is a duopoly or oligopoly in many cases. In cloud, 66% of the market is held by 3 players.
In USA broadband you have the incumbent cable provider, the incumbent telco and maybe the 5g fixed wireless, which is from a different telco.
In other parts of the economy you will see the same pattern.
Utilities are often explicitly authorized monopolies. It's hard to leverage the free market for these types of services because of the physical impact they have.
This is why monopoly regulation exists, but it is not always employed. There is only one terrestrial internet provider where I live. There is zero oversight of their pricing (they just increased prices 20+%) or service. The only alternative is satellite, but that isn't much of an option because we get weather that takes it out for weeks at a time multiple times each winter (e.g., 10 feet of snow fell in the last week of February / first week of March). There is spotty cell coverage for ~20% of the town and none for the rest. So, no competition and no regulation.
Here's an idea... maybe, just maybe the fed shouldn't inject the economy with a bunch of money no one earned????
It's almost like printing money out of thin air and sticking it in to people's bank accounts, means everyone suddenly has more money and then businesses raise prices to level everything out. WEIRD.
I'm glad we saved all the wfh white collar workers. They totally needed money on top of the money they were making from the job they didn't lose during the pandemic.
Even with hindsight , if you assume the massive lock down happens, we have no idea what happens to the economy in the initial months without the stimulus.
Politically, people can disagree with the lockdown, or later stimulus checks and later rounds of PPP.
But I have trouble critiquing the initial response in quickly getting money into the economy.
The issue is the lockdowns didn't ever need to continue after the initial 2 week phase. There was no consideration for anything other than we need to obliterate covid by all means necessary. Even when they were presented with data that contradicted the need for lockdowns they decided to double down with more restrictions.
The initial 2 week response was understandable, everything after was not.
At my last job, non tech, one of the most popular products I was selling in the decade and a half that I worked there went from $.99 to $2.49. My pay stay the same or went down slightly every year.
Yesterday I was at the store and saw another popular product priced at $5.69. It was $4.29 when I left a year ago.
If you consider "motive, means, and opportunity" then your question seems to be, essentially, "the motive should have been there in 2019, why now?" and the answer is that the means have become stronger through increased corporate concentration, and the opportunity is greater because the pandemic and political climate provides an excuse.
Not that shame was a huge pressure in 2019, but it's even less of one now.
Some percentage of people, even here on this very site, will argue with these conclusions, and say it's the pandemic, or wage pressure, or anything but pricing power, and that percentage of people is higher today than it has been in the past.
The pandemic and political environment provides an excuse that wasn't handy in 2019. The political environment provides cover. The naked greed has always been there (the motive), but the means and opportunity are stronger today than before.
The prices of items where people spend 90% of their money are up. Obviously tech prices decrease over time, this has been true since the advent of bronze weapons and tools.
Healthcare, housing, education, food, child care, vehicles, gas, insurance, utilities - all up.
You're mentioning one of the few goods for which price went down. A reason for the price cut is probably that many new TV's have become connected to the internet and so you also pay with your data.
> I can go to the store and buy a TV for half of what it cost me 5 years ago, even with inflation.
What's silly is that the same is true for "a car" if you're as willing to overlook the details as you are with "a TV".
"A house" too! House prices are going down! All you need to do is move from a mansion to a trap house and B-O-O-M you're definitely spending less than half of what you were per month.
If I raise my prices but my competitor down the road doesn't, then I probably lose. At the very least consumer watchdogs will be all over me.
The massive media blitz about how we're in a recession and facing hyper inflation is creating the perfect smokescreen. If I raise my prices now, in current climate, ky competitors will likely follow suit. Because we all know we can get away with playing dumb and pretending it's just inflation.
This is why corporate taxation is so important as well as the real solution to rising inflation.
We have the additional factor that the banking sector may not be able to withstand further interest rate hikes due to bad risk management. Protecting the banking system is pretty much the only thing that could prompt lawmakers into action (eg a windfall profits tax) but these aren't ordinary times.
But this will never happen. It's not even a partisan issue. Particularly since the awful "money = speech" decision [1], both sides of politics are bought and paid for by unchecked corporate power (eg [2]).
Corporate consolidation makes this worse. Terms that might otherwise be illegal like "price gouging" and "price fixing" have been replaced by sanitized legal versions like "price leadership", which is basically the same thing. One company raises prices. The other follows suit.
And for some reason corporate profiteering is fine but workers getting paid more isn't [3]. Weird.
Because it creates an incentive to invest in the business. Maybe even higher wages (God forbid).
Think of it this way: you can either do a $1 billion share buyback or invest $1.3 billion in the business. If we had a 75% profit tax then it would be $1 billion in buybacks or $4 billion in the business.
Additionally, higher interest rates really benefit no one. Higher taxes fills government coffers and allows income distribution to those most in need.
Lastly, interest rates are indiscriminate. They hurt every business and borrower. Taxes only impact profitable businesses to make them slightly less profitable.
> Because it creates an incentive to invest in the business.
Why would investing in business reduce inflation in the general case? That would only be true if production capacity was at it's maximum and the demand is anticipated to remain high.
> Maybe even higher wages
Which will likely increase inflation further.
> Higher taxes fills government coffers and allows income distribution to those most in need.
Which will almost definitely further increase inflation.
> Taxes only impact profitable businesses to make them slightly less profitable.
Why is penalizing successful businesses a good idea?
This is a myth perpetuated by people who simply want to suppress incomes to get slightly higher profits. It's the Tyranny of Austrian Economists combined with Reagan-era trickle-down economics and deregulation that have caused real wages to stagnate for 40 years.
> Why is penalizing successful businesses a good idea?
Why is a good idea that only people with incomes pay income taxes?
Why is it a better idea that everyone pays taxes instead of only those who are profitable paying some of those profits in taxes?
Are you really claiming that more money chasing the same amount of goods isn't going to cause inflation?
> Why is a good idea that only people with incomes pay income taxes?
The context of the discussion was increasing taxes. And you did not explain the mechanism by which increasing corporate taxes is supposed to reduce inflation.
This is all so silly. I work in the lumber business. We always, every day, at all times, sell our lumber to the highest bidder. But for the first ~3 weeks of the pandemic, our sawmills ran flat out -- more production than ever. Notwithstanding that fact, we saw unprecedented pricing -- because demand was radically outpacing supply. A true "super cycle" driven, I believe, by robust federal stimulus. That's since corrected significantly as interest rates have cooled home building and repair/remodel. But the idea that we made a bunch of money during the pandemic because we were greedy and jacked up prices is hilarious. We are just as greedy today as we were a year ago -- and making very little. We always sell to the highest bidder. I have no idea how we'd even do it otherwise -- a lumber lottery? All of this reporting about corporate greed is truly dumb.
I admit I don't know much about the grocery business. But you make it sound like those phone conferences were recorded surreptitiously, when in reality they were just their public earnings calls. And, by my read, they were saying that the consumer was willing to pay more and, in an effort to preserve their margin given increased supplier pricing, they were increasing store pricing. None of that strikes me as surprising. How else are they to set their pricing, other than to charge what people are willing to pay? At some point, large margins will cause more participants to enter the market, driving down pricing. Without that price signal, supply would never increase, leading either to increased prices or shortages. This is all Econ 101. I agree that a monopoly position can compromise market dynamics, and maybe that's the case with grocers, but I don't see that in the articles you link.
If they were only increasing prices to a degree that covered their (temporary) higher costs, they wouldn't be making record profits. Since they generally brag on these calls about their record-breaking profits, and say that their record-breaking profits are linked to the fact that they raised prices, we can safely deduce that they're increasing prices more than they had to.
The article is specifically saying that in instances like yours, the problem isn't the large demand driving up prices - it's that businesses are driving it up even beyond the natural demand price having been emboldened by the former.
But I have no means of doing that. It's a commodity market, and there are many, many suppliers competing with me, and ruthlessly. As pricing rose, we even saw surges in European imports. The only thing that drove up lumber prices was extraordinary demand. And if that happened for lumber, I'm inclined to believe that was the driving factor in other product prices too.
If it's commodity, then it's traded on futures. Distributors would sell to retailers who shape consumer-facing pricing to maintain stability. Essentially, Home Depot sells out, looks to their supplier/distributor who says it'll be a few weeks to get enough to meet demand, commodity prices jump as demand increases for short term supply and Home Depot raises their prices.
This is a fabricated sequence of events. It's the SEC/CME/FTC, etc's job to verify the following in this example:
1. Did Home Depot raise their prices _more_ than was necessary to respond to increasing consumer demand and decrease supply?
2. Did the suppliers stockpile or falsely report their availability to result in over charging?
3. Did pricing between sawmills/loggers and suppliers increases proportionally? Did pricing between retail and suppliers increase proportionally?
These questions will help to understand possible unnatural inflation was introduced. In the sequence of events the sawmill behavior is just a single indicator along the way.
Some lumber is traded on futures, some is not, but nearly all of it is manufactured to universal specifications (set dimensions and grades), making it a commodity market. Home Depot and the other box stores were constantly running out. We struggled for several quarters to keep the distribution centers supplied. The box stores were buying lumber everywhere they could. If they were price gouging, the consumer certainly didn't flinch, as quarter after quarter we witnessed historic take-away.
Defining "truth" and "virtue" is like nailing jelly to a wall; nobody agrees on what they are. That's why economists like Marx and Keynes didn't try to measure them. Essentially nobody that aspires to any kind of rigour appeals to truth and virtue.
If you're selling luxury goods, then sure, exercise your imaginary "moral imperative" all you want.
When you're selling something people need to survive, like food or medicine, your moral imperative runs in the other direction, and profiteering at the expense of deep need is immoral in the extreme, especially if there are factors preventing competition so you have a captive market, like increased corporate concentration or a government-enforced monopoly.
This reliance on the free market falls apart instantly when there is collusion and price fixing, and the conditions we're seeing with increased prices is literally the textbook example of evidence of price fixing.
The only reason capitalism isn't 100% broken is because of regulation. Therefore we must accept that pure free market forces are not the morally superior path.
What you describe is the definition of price gouging. A global disaster occurred which caused supply shocks, demand shocks, or both in various industries which led to companies increasing their prices as a response. Society only has so much tolerance for selling to the highest bidder, especially when a product is more of a necessity than a luxury. People still have a fair price in their mind and it is viewed as unethical to charge more than that even if some people are still willing to pay that price.
People who have a notion of the price last month as being the "fair price" are welcome to not buy the limited supply of sawmill output until the price recovers to something that they find fair. If there is only capacity to produce Y 2x4x8s, while there's demand for 1.3xY, how do you propose to allocate them? Pricing serves to tend to allocate them to the place where they will create the most value.
This is not water in a several-week-long shortage after a hurricane. These are building supplies for several-quarters-long chronic shortages. Delaying having drinkable water is not feasible. Delaying building is.
> Pricing serves to tend to allocate them to the place where they will create the most value.
No, price just puts a floor on the value creation required. It doesn’t actually enforce the efficient use of scarce resources. Beyond that floor, higher prices tends to allocate goods to the people with the most money.
> Pricing serves to tend to allocate them to the place where they will create the most value.
Yeah, because my house is more valuable than yours, as exemplified by the fact that it costs more money to buy lumber for it, so it can create more value. Clearly I'm a more valuable human than you (because I've got more money), and I deserve better and more valuable house.
There was no supply shock. In the last three years, there was more lumber produced than ever. It was a demand shock driven by federal stimulus. And, again, what were we supposed to do? Tell the highest bidder we wouldn't sell to them? And then what? Lottery our lumber to lower bidders? That's ridiculous.
I was being general. Lumber might not have had supply shocks, but the pandemic did cause many supply shocks across industries.
I wasn’t offering a solution. I was remarking on the idea of we’re just selling to the highest bidder as a universal defense for this behavior. We can recognize it when a grocery store raises the price of water after an earthquake. We should be able to recognize it elsewhere.
At the very least, you could have been a whole lot more clear than responding to a comment of "But for the first ~3 weeks of the pandemic, our sawmills ran flat out -- more production than ever. Notwithstanding that fact, we saw unprecedented pricing -- because demand was radically outpacing supply." with "What you describe is the definition of price gouging."
I'm not clear on what you think wasn't clear in my original comment. Are you suggesting that increased production can't happen in situations of price gauging?
My intent was to link the logic OP described with the logic behind price gouging. I didn't think it was expecting too much of the reader to have a negative view of price gouging and therefore view my comment as a criticism of OP's explanation.
If you were intending all along to be speaking generally, replying to the description of what they experienced with lumber prices and mills operating at maximum capacity with "What you describe is the definition of price gouging" could lead many readers (including this one) to conclude that you were speaking specifically about their situation rather than generally about the topic.
Even now I can't be sure whether you think the multi-quarter increase in price of building supplies in 2020 and 2021 was price gouging or not.
I was speaking to their specific logic and not their specific situation. Whether their situation qualifies legally as price gouging depends on the degree they raised prices and the jurisdiction in which they do business. Neither of those were mentioned in the original post, so whether their situation was truly and legally was price gouging was unanswerable to any of us.
I specifically used general terms in my comment. This included using "disaster" instead of "pandemic" or "COVID". I included an "or" in "supply shocks, demand shocks, or both". I also referred to "various industries". I thought collectively that was enough to make it clear that I was speaking more broadly than just referring to OP's specific situation. I don't know exactly were I lost you, was it just the fact that my comment was a direct reply to their and you took that as an indication that I wouldn't speak beyond that initial context?
I went astray when I read your first sentence as being in reference to the specific situation. "What you describe is the definition of price gouging." What percentage of the blame for that misread is on the reader and what percent is on the writer is surely a matter on which opinions could differ.
After an earthquake and when people have no access to tap water demand for bottled water goes up. Yet raising the price of bottled water in that situation is still considered price gouging.
What point are you trying to make with this? Yes, it is obvious. I was not denying that. I was pointing out that raising the prices too much (10% in California) in response to that increase in value is illegal.
I don't know what states you consider smart, but Texas is generally the polar opposite of California and they have laws on price gouging too. They just don't put a percentage on it and instead prevent "exorbitant or excessive" pricing.
If I'm considering a pricing strategy for my business, want to stay on the good side of the law, and am given a choice between a set percentage and two vague words in which there is no exact definition, give me California's stupidity any day.
You're free to be stupid. The probability that there will be less water available than there could be will be higher there than places that are less idiotic.
Water is a life necessity without a comparable alternative. Nothing else in this discussion comes close to comparing. Eggs are just one kind of nutrient vessel, we have a lot of different foods. There isn't a right to have access to specifically eggs. Lumber is not a life necessity.
That article is comically wrong. There's over 4 billion board feet coming on line in the US South [1], and there have been several more recent announcements. There are fewer new mills anticipated in the PNW (though still some major announcements [2]), but that's mostly because log supply is declining at a rapid clip.[3]
> It was a demand shock driven by federal stimulus.
The few thousands in stimulus dollars was minor compared to two coasts of high income earners wanting to improve / expand their houses to support work from home.
$2,000 is almost nothing when it comes to home improvement. A couple large appliances, or maybe replacing 2 windows + trim.
There was also a huge demand for new houses in areas that traditionally had lower population density, this shift in living location also drove part of the housing boom.
"Laws often include exceptions for price increases that can be justified in terms of the increased cost of supply, transportation, demand, or storage."
IANL Based on the above definition, it sounds like OP is not describing price gouging. Their business is not setting the price of the goods directly. The buyers are competing for a limited supply and pushing each other to bid higher amounts. That sounds like a justifiable increase.
Now, if the mill saw the emergency and said "we won't take less than cost + 45% ..." or something like that, it would likely fall into price gouging territory.
Lumber is not in quite the same boat as everything else: virtually every year the US reenacts protectionist import policies banning Canadian softwood lumber from being imported. The easiest way to lower lumber prices is to allow imports of Canadian lumber to resume.
Canada also replants the old growth that has been cut. Not sure what more people expect to be done. It's not like the US didn't cut their old growth in the past.
That's a fantastical viewpoint that borders on hypocrisy if you look at what the US did over the past 300 years. Forestry is quite sustainable when old growth trees are re-planted with new trees that can be harvested in a few decades. It's not like oil, gas or minerals where once it's gone it is never coming back. Americans seems to be completely fine with exploiting those non-renewable resources until they're gone forever.
I live rurally and know the difference, and guess what: the forest I'm in the middle of right now was actually cleared to fields by settlers 150+ years ago. Since it hasn't been farmed for more than 60-70 years, it's reverting back to a more natural state all on its own. I have watched over the past 40 years how the fields have been filled in with more and more trees, and, yes, it's wonderful. Old growth forests can regrow perfectly fine when left alone. Nature is awesome in that regard.
If the US actually gave the slightest care about preserving the environment, then they should rein in the companies that are destroying the environment with no chance of nature being able to recover. Cut back on the amount of oil being pulled from the ground and burned, stop bleeding all the rivers dry because of century old water rights, stop creating newer and worse pesticides and stop building bigger and bigger SUVs for the love of god. That it's being done on softwood lumber is entirely a protectionist measure. It has absolutely nothing to do with the valuing the environment; it only matters because the lumber industry has a vested interest in maintaining high prices.
Our company has large sawmills on both sides of the US/Canada border. Notwithstanding the anti-dumping and countervailing duties, pricing was equally high/lucrative in Canada. There are no bans or quotas.
> I work in the lumber business. We always, every day, at all times, sell our lumber to the highest bidder.
This is auction-style pricing. Good for lumber and some other commodities, but not great if you want to buy eggs, bread, medicine, or gas on the way to work.
>We always sell to the highest bidder. I have no idea how we'd even do it otherwise -- a lumber lottery? All of this reporting about corporate greed is truly dumb.
Well, the other way to sell it is to put a price on it and sell it to the first person willing to pay that price!
You mentioned that you have a lot of competition. That along with auction-style pricing will normally get very close the the WTP ("ideal") price of a product. This is not always possible. It is usually difficult to dial in the "right" price of a consumer product. They can just not buy your chips or cheese! It is no big issue for them and the psychological effect of raising prices for no reason will cause just that reaction. That is why shrinkflation has been a thing.
Imagine having to outbid someone at the grocery store for milk. Or having to outbid someone at the pharmacy for your child's insulin. You can see why certain products cannot be sold to people that way.
Another way of looking at this whole situation is that every company is greedy to some extent. Pricing is hard. And they took advantage of certain events and situations to try new pricing. Many lied about why (claiming supply issues, because saying "we just want more of your money" doesn't sit well with people), which is not cool. If the new pricing sticks then it is probably closer to the "real" price. If it is too high, people will not buy the products and the price may go back down. I say "may" because there is always the possibility that selling fewer items at a higher price might produce more end profit than selling more items at a lower price.
And what price would we choose? Yesterday's price? Last year's price? And if we sold out immediately, what then? Would we just have a race every morning for buyers to secure the prior day's production? Why wouldn't we increase price and see if we sold out again? And do the same the next day? You'd quickly wind up at the same place -- that is, charging what the market will bear. And while I was doddling along, my many competitors would be selling to the highest bidder, then using that money to bid up the logs I have to buy, thereby putting me out of business.
Now you are getting it! Pricing is hard. You work in an industry where it isn't a problem, but it is if you sell potato chips. The point being that nearly nothing in a normal person's life is priced and sold the way you do it, so comparing them is silly.
btw, auction-pricing is the wet-dream of every MBA that runs a company. It is the closest thing that people have to find out a person's WTP, for exactly the reason's you outlined in our comment. But you can't do that with loaves of bread, or bacon, or laundry detergent, or nearly anything else.
But certainly the manufacturers can. And the grocers compete with one another. I honestly don't see the differences you do. Lowe's competes with Home Depot in much the same way Safeway competes with Roth's. And the manufacturer selling to those grocery stores is going to sell to the one that pays them the most. We don't sell on auction boards like you're implying. Our sales floor takes calls from buyers, and they makes calls to buyers, and every day our traders close sales on the basis of who's willing to pay the most. It's not that complicated.
>But certainly the manufacturers can. And the grocers compete with one another. I honestly don't see the differences you do. Lowe's competes with Home Depot in much the same way Safeway competes with Roth's. And the manufacturer selling to those grocery stores is going to sell to the one that pays them the most.
No. In fact the manufacturer might sell through the distributor that pays the least, if they have high enough sales/coverage (think Walmart) and the total profit is acceptable. Think about selling your product through a mom and pop store that pays you more per item and you clear $1 but they sell 10, or selling 100,000,000 million of your items but you are only clearing $0.05 each. It is much more complicated and larger grocer chains do not have to pay as much wholesale, because they have access to a lot of loyal customers. So they don't compete they way you think and they sure as hell don't have to "bid" on items if they are a large chain. If anything, sometimes it is the reverse, where manufacturers have to pay for self-space and placement. All the ones of a similar size likely sell the product for about the same (in the same demographic area), but may pay different wholesale prices. Or they may not. It is much more complicated. The main point is that it is not like your business. Yours is special and highly-sought after in business, but almost never available.
>We don't sell on auction boards like you're implying. Our sales floor takes calls from buyers, and they makes calls to buyers, and every day our traders close sales on the basis of who's willing to pay the most. It's not that complicated.
Auctions don't have to be complicated. Whenever anyone "bids" on something and the winner gets it, it is auction-style pricing. There are many kinds. The ebay style is one. The one at estate sales or Christie's is another (called open-cry), etc. But it is the holy-grail in business of determining price. The only thing better would be to somehow scan the brain of a person and know the maximum that would pay and charge that.
>In fact the manufacturer might sell through the distributor that pays the least, if they have high enough sales/coverage (think Walmart) and the total profit is acceptable.
There's where you lose the thread. They sell to Walmart not because "total profit is acceptable." They do it because they believe it will make them the most money in the long run. Maybe potato chip manufacturers are different than lumber manufacturers, but I doubt it.
>There's where you lose the thread. They sell to Walmart not because "total profit is acceptable." They do it because they believe it will make them the most money in the long run.
I mean that the exact same way you do. If the word "acceptable" is tripping you up, we can substitute "maximize" and it means the same to me.
>Maybe potato chip manufacturers are different than lumber manufacturers, but I doubt it.
I mean, the fact that people call every day to bid on your product and (presumably) the prices changes daily and they don't on theirs, objectively means that it isn't, right?
Yes, that much is likely true. Yet, I maintain that the market dynamics we saw in lumber very likely played out in other sectors. There's been so much discussion of price gouging, when at least in my industry, I know for a fact the pricing was a product of radically increased demand. It seems very likely to me the same is true for potato chips.
>Yes, that much is likely true. Yet, I maintain that the market dynamics we saw in lumber very likely played out in other sectors.
I agree. The exogenous shocks from Covid (and the shutdowns/working from home) and the money that the govt. lavished on people and businesses caused a lot changes in market dynamics. Some temporary, some seemingly permanent, and some still in flux. As an example, I own rental property on the side. In the town I live in, there hasn't been a decrease in housing and there hasn't been an increase in population. However rents doubled in the span of 3 years. As for why, it seems, they just did it because others where doing it. Taxes didn't go up. Insurance didn't go up. Repairs cost the same. It appears that you can just charge more and people will pay it and so that is what happened.
>There's been so much discussion of price gouging,
When I think of price gouging, I think of someone buying up all of the bottled water after a hurricane and then selling it for 10 times as much when there is no other option available to people. What these companies are doing is testing new price points. In fact, if they are publicly traded and didn't try to maximize shareholder profits they could be facing being ousted or even legal threats.
On a side note, HN has a funny relationship with "price gouging" because many love dynamic pricing (like Uber uses) which is literally price gouging, but if someone tries a new price point on bacon or a dozen eggs they flip the fuck out.
>I know for a fact the pricing was a product of radically increased demand. It seems very likely to me the same is true for potato chips.
I mean, you know your business. I believe you. But there really are companies out there testing new price points just because it is convenient and they won't face the typical backlash from customers because "inflation", or "supply chain issues", or whatever, but really they are just seeing if they can get more profits. This shouldn't be shocking to anyone but it rubs consumers the wrong way when it happens and when everyone does it, it contributes to CPI inflation which people feel at home.
I don't know about lumber, but for groceries, I know the goods can be sold up to a year before delivery. So while you might have some of the dynamics you mention, that changes the responsiveness a fair bit.
Many industries don't have many manufacturers or operate on different regions. You get an illusion of choice at the grocery store, but many times the a single factory produces product under a dozen different brands.
Well, even in a highly competitive industry like lumber, with many manufacturers competing daily for the sale of identical products, we saw significant price increases. This due almost entirely to a dramatic increase in demand relative to supply. So much has been said about supply constraints and greedy corporate shenanigans, but lumber is an excellent example of neither being true. I think the inflation we're experiencing is a product of people spending more money, and having more money to spend, likely as a direct result of historic and unprecedented federal stimulus. And I attribute fault to both parties. Trump juicing the economy at the top of the business cycle, Biden blowing the lid off, and "it's-only-transitory" Powell keeping rates too low for much too long.
An option to prevent running out is quotas. They are pretty common. For example, during the pandemic some groceries restricted toilet paper to a certain number of packs per customer. Similar things happen with discounts ("50 percent off, limit one per customer") or products vulnerable to scalping like new game consoles.
Maybe you don't understand how the average person thinks of corporations, if you think all this reporting about corporate greed is so dumb.
There's all this reporting about corporate greed because the average person think corporations wouldn't do this, and that it is quite bad for corporations to do this.
Or that the media is making a mountain out of a molehill, like they often do.
I agree with your overall post, but the demand was likely less driven by federal stimulus, than everyone being stuck home and looking around and realizing maybe its time to finally fix that fence/deck, and knock out that project I have had on the to-do list for years now... I mean maybe the injection of the stimulus helped turbocharge it, but three years ago virtually all of my discretionary spending just stopped overnight. There were no restaurants or movies to go to, practically all activities were canceled, etc.
I mean its a real indictment of the state of America if a $1200 check can just radically reshape the economy. I guess its possible the even larger corporate checks were a factor here too, but I was really surprised that restaurants and other establishments didn't take the time as an opportunity to remodel or update, but obviously there was a lot of fear, probably a lack of willing workers, etc that prevented a lot of that.
As a personal anecdote, I didn't receive any stimulus funds of any sort, but thought a nice covid-safe project would be to get my driveway redone- its a pretty simple outdoor concrete driveway, but no one would do this in all of 2020. I still can't get anyone to do my punch list of small $5-15k projects.
The demand was driven by REQUIRED construction to meet safety measures. Instead of the attack on 'free money' he thinks he is making he is showing that his company profited from big government (IE rent seeking).
I am sorry, I don't understand- can you explain this? What construction was required for safety measures? Especially such that required wood specifically?
In NYC, some restaurants could reopen and conduct business as usual if they were classified as outdoor venues. This interacted oddly with another regulation that let a restaurant count as “outdoor” if part of its seating area had outdoor seats, so you had a lot of restaurants in the middle of the bustling city build these gazebo-type structures that put some number of tables right on the sidewalk in the midst of pedestrian foot traffic.
For a small restaurant owner, the combination of these two loopholes created an intense pressure where building out this outdoor seating was simply a requirement of doing business
You really think this causes lumber prices to fly through the roof though? It may have been a factor but it seems a stretch that NYC restaurants would increase demand that much.
The total (maximum; there was an income phaseout) amount under the CARES Act was $1,200 credit per single filer ($2,400 for married filing jointly) + $500 per dependent child, the amount under the American Rescue Plan (which had a different income phaseout) was $1,400 per individual (including adult and child dependents).
And, yeah, there were lots of other payments in those bills besides the income-tested-only stimulus payments to individuals. (
> if a $1200 check can just radically reshape the economy
It was far more than that. There were child tax credits, student loans were paused, evictions were paused, unemployment insurance payouts were massively increased etc. With the covid boosts my wife made no less on unemployment than she did working, and some people got a moderate raise to stay home!
> but the demand was likely less driven by federal stimulus, than everyone being stuck home and looking around and realizing maybe its time to finally fix that fence/deck, and knock out that project I have had on the to-do list for years now…
Yes, and also, aside from the general stimulus payments, there was also the combination of a whole lot of unemployment plus federally increased and extended unemployment payments that were designed to approximately, on average, to boost unemployment payments to 100% of last employment level. So you had lots of people with extra time on their hands (whether newly remote workers saving commute or people completely out of work) with less “normal” activities to spend time and money on, with their normal money or more. So, yeah, there were lots of opportunities to knock out household projects that were otherwise being deferred, or to discover and take on ones that hadn’t been planned.
OK, but lumber isn't a monopoly controlled market, whereas a lot of other things in this country (medications, eggs, real estate recently, power, lysine, cable internet) are and are therefore subject to price fixing.
I remember that the day before gmail went into beta, yahoo mail was charging 25 dollars a month for 100mB of storage. Gmail went beta and offered 1 GB for free, and the next day, yahoo mail offered the same thing. They always could have done that, they just had no competition to force them to do it. So they charged artificially inflated prices.
This is what many older people don't understand. Back when they were young, there were many competing businesses in many fields, but now, there are often one or a small number, and they engage in widespread price gouging. Because they can.
This is the natural evolution of a capitalist economy- no conspiracy is required. The point of competition is, after all, to win, and after you win, you get to set the price of goods and services to be whatever you want it to be. Just ask Martin Skreli. Price fixing in this country is ubiquitous and standard practice. In that case, sometimes the government can step in and introduce competition to a market where there is none- as California is doing to insulin- or they can regulate prices- as they do with power.
I’m 43, gmail was in beta when I was a teenager. I’m gen x, born 1 year too early to be a millennial.
It was just an example. I think it’s a pretty good example, I remember thinking, wait, yesterday it was 25 a month and now you get 10 times as much for free?? How does supply and demand explain that?
Anyways the people making most of the decisions in our society are 30 years older than me.
If the pandemic MANDATEs new isolation systems, I have to build them, whether you charge me a fair price for lumber I am now required to purchase or you choose to jack the price up. My only other option is to CLOSE MY BUSINESS. You definitely price gauged, your company acted shady and is not a responsible member of society. Flat out. Period. You took advantage of government mandated demand that was in response to keeping people safe in order for you to make more $$$. Your business is a profiter at others expense.
Lumber is a homogenous commodity in a transparent market that is auction driven, so of course it will be more difficult to control pricing … there is little pricing power.
Now, your iPhone, prescription drugs, favorite personal products, chicken, meat and eggs are a different story. These markets are controlled by a few dominant producers that distribute through tightly controlled retail markets and hold great pricing power.
Yet, even with so little pricing power, lumber witnessed extraordinary price increases. Why would we expect anything different in other product categories? If anything, most products witnessed less price inflation than lumber. My point is that lumber makes for an excellent case-study in demand driven inflation. Everyone wants to point to supply shortages and cartelization -- and greedy corporations -- when given what we saw in commodity pricing, there's plenty of reason to conclude the rest of the market was adjusting rationally in the face of increased demand and money supply, and without collusion or monopoly influence.
Lack of pricing power does not mean that the fundamental forces driving prices cannot have an impact like increased prices. It means that the industry/company/supplier cannot solely or significantly control the price.
Lumber initially shot up if I recall due to a supply issue when covid caused mills to shut down with limited labor supply and even outright restrictions to operation by local governments. It subsequently whipsawed to much lower prices once mills came back online as evidenced by the volatile lumber spot prices shown here:
As for corporate profits and their impact on recent inflation, see the following article which states:
“Since the trough of the COVID-19 recession in the second quarter of 2020, overall prices in the NFC sector have risen at an annualized rate of 6.1%—a pronounced acceleration over the 1.8% price growth that characterized the pre-pandemic business cycle of 2007–2019. Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase. This is not normal. From 1979 to 2019, profits only contributed about 11% to price growth and labor costs over 60% …”
IT enabled a deeper vertical integration yielding direct access to consumers. Fewer parties buffer and arbitrage goods to optimize goods/price relationships. It was great while all the middlemen were cut out - now less so.
The Federal reserve is essentially printing money. Tons of entitlement programs, unfunded spending, bail outs, etc. crazy amount of spending for Covid. The inflation act that was all about spending huge amounts of money for climate and other things. Exact opposite of reducing inflation.
This is the primary source of inflation. Secondary is removing millions from workforce so that less things are produced.
Articles like this are trying to shift blame away from the government.
Corporations charge more money because people will pay it. People will pay it because there is a lot more money now than before, without a corresponding increase in the amount of stuff/goods/services being produced.
In the face of all this money, corporations can do a few things:
1. Change nothing, allowing the first customers to buy everything and leave shelves empty.
2. Ration, choosing which customers merit being sold to, or restricting the quantity that any particular customer can buy.
3. Raise prices until the pressure is equalized and people don't empty the shelves.
The cost of inputs doesn't matter too much, except to the extent that they might actually reduce production if they aren't able to pass some/all of these costs on with higher prices.
>Corporations charge more money because people will pay it
People pay for it because they don't have a choice.
>Change nothing, allowing the first customers to buy everything and leave shelves empty
The ridiculous economic rationalization. "Hey everyone, we increased the price by 30% so we keep more on the shelves by pricing out the lower/middle class!"
You sound like you are just out of a micro economics class and think everything "has to work this way". What you don't realize is that your ENTIRE MINDSET is viewed on MAXIMIZING PROFITS for that SPECIFIC CORPORATION and not the overall welfare of society. You also assume EVENLY DISTRIBUTED WEALTH if you are disregarding the welfare of society.
If I run a donut shop and can produce 100 donuts a day. According to you, the only way to run the business is to charge as much as possible to still sell ~100 donuts so I can make the most profit. What if by selling them at a reasonable price, everyone is able to afford them and we are still able to pay our workers and ourselves well? Gasp! Another solution presents itself which makes the overall society better off. It doesn't have to be about charging as much as possible, where that extra money will just go to the owner and not the workers anyway.
> People pay for it because they don't have a choice.
Almost everything has substitutes. I did some construction projects these past years, and because lumber prices are up, there's a lot more metal in my construction. Metal siding and roof for a goat shed, metal studs in new walls. Those were always options I wouldn't have normally chosen. The metal goat shed is likely going to last longer, which is nice, but the metal studs in the wall don't provide a benefit, other than cost/availability.
When all the items in the category go up, there's not much substitution to be had, of course.
My point is that people don't consume calories they eat meals. The foods people eat, especially staple foods, are important parts of their lives. We can't guarantee every staple be cheap obviously, but a lot of these things are staples in the first place because they are cheap and widely available.
If you're eating for example beans and rice as the base of your diet you're already near the bottom of possible prices for sustenance. Sure junk food is cheaper per calorie in the short term, but we don't have public healthcare where I live and you're just signing up to be publicly shamed for your health problems later.
There's a lot of different oils you can cook with though. Including animal fats.
Rice has many suppliers and a couple types, but if that's not enough, other grains are available. If the cost of rice has gone up, some of those other options look more appealing.
I understand this doesn't help if you're already at the maximum cal/$ and now those items are more expensive. But in that case, the problem isn't there's no substitute, the problem is there's no affordable substitute.
Fixing the price of rice, so that people with low income can afford it doesn't work when there's low supply, either though. In that case, they can afford it, if it's in the shop, but chances are it will be out of stock. And you still have the hard/impossible problem of how do I eat when I can't afford food?
Lumber is the worst example you can pick because there is so much competition and substitutes. What about the only grocery store within a five mile radius? Do consumers have substitutes then? Maybe Amazon, but whoo boy Amazon sure does have a lot of market power too.
You are the worlds most popular donut shop. People are literally fighting each other in line to get your donuts.
For reasons (quality, scale) you can only produce 100 donuts a day. Definitely no more.
On an average day, you have 200 potential customers. Busy days, closer to 400.
A donut costs you $0.20 to make (incl labor).
Do you sell them for $0.20 each and let the first person in the door buy all of your donuts for $20? Do you ration them and let each person only buy one? (Sorry mom! Guess you have to split with the kids.) You have not benefitted anyone! You have made the situation worse.
No, you raise the price of your donuts to $5 or so. Some people will buy a couple but most people in the front of the line will get a donut still.
This is literally what the super famous donut shop near me does! Buying a dozen donuts from them would be like $60+, but almost everyone can buy a donut or two.
Raising prices for a limited commodity when literally not everyone who wants one can get one is the best strategy.
> everyone is able to afford them
It doesn't matter if all 400 people in line could afford them if the first person in line buys them all!
> Raising prices for a limited commodity when literally not everyone who wants one can get one is the best strategy.
...
> It doesn't matter if all 400 people in line could afford them if the first person in line buys them all!
the other solution to raising prices is to limit purchases per customer isn't it?
i seem to recall they did this with ps5, and same for iphone in the old days during launch... its not novel idea imo... e.g "limit one dozen donuts per customer" etc
I provided two other very reasonable alternatives in my prior comment. All three of these options make sense and are used in various contexts. But other than these three choices, I can't think of any others.
It's not ridculous at all, it's the actual tradeoff that has to happen in order for prices not to go up. For example, someone elsewhere in the discussion was complaining about US egg prices - supermarkets here in the UK are extremely competitive and reluctant to raise prices, with the inevitable consequence that our egg prices are still normal but there weren't actually eggs on the shelves most of the time.
>People pay for it because they don't have a choice.
But that money has to come from somewhere. Money is not infinite from the perspective of any individual actor.
If you spend more on gas and 2x4s you have to spend less on something else. Consumer and business credit makes this kind of fuzzy but for the most part it holds.
>If I run a donut shop and can produce 100 donuts a day. According to you, the only way to run the business is to charge as much as possible to still sell ~100 donuts so I can make the most profit. What if by selling them at a reasonable price, everyone is able to afford them and we are still able to pay our workers and ourselves well? Gasp! Another solution presents itself which makes the overall society better off. It doesn't have to be about charging as much as possible, where that extra money will just go to the owner and not the workers anyway.
What are the margins on this hypothetical donuts shop and what do you do when the price of labor goes up 20%, energy goes up 80% eggs goes up 100%?
>What are the margins on this hypothetical donuts shop and what do you do when the price of labor goes up 20%, energy goes up 80% eggs goes up 100%?
Sure the prices have to increase. But what if they just increased by the amount that it actually cost? And then decreased as those costs go back down?
That's the entire discussion here- corporations are increasing by WAY MORE than what the raw inputs cost.. otherwise they would not be making more profits. And then are not proportionality decreasing as their costs go back down.
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[ 3.3 ms ] story [ 267 ms ] threadPlenty of journalism outlets out there to subscribe to. If you wanna avoid, say, Cargill agriculture, you'll have a tougher time.
(1) Rising prices in systemically significant upstream sectors due to commodity market dynamics or bottlenecks create windfall profits and provide an impulse for further price hikes.
(2) To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to bottlenecks, amplify price pressures.
(3) Labor responds by trying to fend off real wage declines in the conflict stage.
So they say that the sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions.
[0] https://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1...
I think rather than pricing regulation we just need better antitrust enforcement.
Those M&A have devastated so many markets and companies, IMHO.
The problem is that the the big stores (Walmart, Amazon, Costco) are too big to compete against: they can afford loss leaders or, hell, even entire loss stores simply to drown the entirety of smaller stores in dozens of miles around them, and on the purchasing side they can demand insane rebates and other terms (e.g. payment schedules >> 30 days) from vendors which makes it fundamentally impossible for smaller stores to get the same terms.
Some of these forces are things we want to encourage (economies of scale), some of them we probably have to allow, and some of them are pure emergent evil that we have "collectively" decided not to mitigate.
Deregulation only address one of these forces. It's not a useless idea, but it gets wildly over-promoted by people who A. can't bring themselves to admit that the free market would ever create emergent bad incentives on its own or B. don't want the government to stop them from exploiting said bad incentives.
If raising capital for competitors is hard (see current financial situation) then even without a trust, the competing entities benefit from raising price as the demand is captive.
Competition by itself is not a solution. You need new competition. The current state of financing a new entrant is what needs to be looked at.
If capital is expensive, being a good business with profits becomes a competitive advantage again, so I expect more competitors in the long term.
Which. Is not a given rn.
For example, if there's a sudden spike in demand for, I don't know, remodeling homes, even perfectly competitive suppliers will take time to increase production.
Pine trees take time to grow before they can become 2x4s I suppose.
Then there's the question of if they believe the spike is temporary, in which case it may be too costly to expand production enough to restore the old equilibrium.
There's some ways to deal with it like futures contracts and strategic reserves... or more aggressive gov intervention like how Quebec built their awful maple syrup cartel via forcing companies to stockpile supply centrally. But mostly there's some hard limits to how much you can optimize a market.
Following your example, a lack of 2x4 has to drive timber prices up, so the scarce resource is used where is most needed: to the people who is paying the higher prices. If that people is wrong in their predictions, they will suffer the consequences. The market dynamics should 1) allocate the current available 2x4 where they are more needed, 2) accelerate the production of 2x4 that previously were non profitable (e.g. remote forests) and 3) explore possible substitutes previously non profitable.
But when you study inflation history, you notice it's always blamed on the business raising prices. With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall. If prices are increasing everywhere, someone is playing foul with money. Sometimes and for short periods it can happen a credit expansion or crunch (imagine people hoarding or spending gold thus varying the amount of money in circulation), but that won't extend for long unless someone is minting gold coins with some cooper in them.
I don't think this is evident at all - a supply shortage will still cause a price increase? Nothing in the classical demand curve model depends on money supply. You can get shortages that increase prices in one area and change the distribution of consumption and investment. The business cycle is still real, and indeed theory was developed around it, even on the gold standard.
But this is something missed by all sorts of hard money advocates. Using bitcoin can't stop OPEC from driving up the price of oil, for example.
This isn't true. If there's less stuff being made then prices go up and people get to buy fewer things. Which is roughly what happened during covid.
https://en.wikipedia.org/wiki/BlackRock
Im continously suprised that people, by assumption of brands and company names assume we still have duopolies or oligopolies.
You can own a whole industry sector without mergers and funny make pretend competition. The competition may hold true for software, because its such a young sector, but for everything else...
Collusion at board level? Or the two sides playing chicken, enjoying the profits and hoping neither does something drastic? It doesn't seem like a stable state but I could see it go on for a bit until there is a correction.
EDIT: Ah, the "Ownership and transparency" section of the article clarifies.
As far as I can tell, the claims about unchecked corporate pricing power being to blame are only about the steps after that and the companies further down the supply chain that rely on the bottlenecked sectors for their inputs, either directly or indirectly. The argument is that unchecked pricing power, a lack of competition and the knowledge that their competitors are facing the same cost increases allows companies to pass on the costs in full or even pad out prices further and increase their profits.
(Also, a lot of the capacity issues are in fossil fuel production, which the mainstream media and activist investors have been campaigning to further reduce capacity in by trying to end new investment to replace declining wells - and telling people that the only downsides of this are for fossil fuel companies whose profits will reduce. Then they blamed corporate greed when this actually had the effect that basic economics said it would.)
Ultimately it's gigantic corporation vs gigantic corporation. Walmart, Target, Best Buy, Amazon, et. al. aren't being pushed around by suppliers. If there were great margins to be made in manufacturing these companies would (and do) step in with their own branded products.
Anecdotally, I think Covid was like a conductor giving the orchestra a cue to start playing. Everyone ran into supply issues at the same time and naturally raised prices to the new point on the demand curve. Those that didn't see supply issues saw everyone else raising prices and figured why not take some easy money. Even if they wanted more market share they wouldn't have been able to expand production.
IMHO, it also revealed that demand was more inelastic in the short term than expected. Like my kid's frozen waffles went up like 2 bucks for an 8 box over Covid. I pay more than I want to but my demand's pretty inelastic. Not gonna fight my kid on his food choices over 25 cents a day. Eventually that will break and I don't think I'm gonna start the next kiddo on the same habit.
Some fancy pants buying a car with cash at $35,000 over MSRP last year during the new car shortage could be called a "new point on the demand curve." But actually financing a car for that last year? Unless there was an enormous increase last year in down payments, it points to bank shenanigans. Loans typically last longer than a year, and banks look at trends past the year in which they write the loan. Granted $35,000 over MSRP is the worst case I've heard. But the more common case of vehicles financed for 5 - 15k over MSRP for rapidly a depreciating asset is still a problem.
And now, a year later, it seems we're already seeing the other end of those shenanigans-- increasing delinquency levels and banks holding off on repos. Because after repo, the difference between the loan and the actual value of the vehicle is stark for all to see.
I have no idea where this market is going. But greedy dealers and finance depts have added so much energy to "natural" market dynamics that it could push many of the cash-strapped used car dealers out of business. Hell, even Carvana may not have the billions needed to survive this volatility. None of this is good, and it's all based on short term greed with little to no basic oversight last year to stave off the obvious risk.
If that behavior is in the set of "natural market forces" then the term is so broad as to be meaningless-- might as well say "inflation is what it is" at that point.
minimum wage in most places is still $7.25, and in some places as low as $2.13
It's pretty intuitive. If you're going to change the price due to an increase in costs, why not increase it a bit more and then just blame it on inflation?
Or, if costs come down later, why reduce prices unless you have to?
This is why inflation is can be so stubborn, increase costs in a single input can ripple though the system, then cycle back and increase costs even further (say cost of labor).
I'd like to know what that is? I'm not being sarcastic if there's a way I'd like to know.
It feels like this is really about disciplining labor, particularly in big tech.
ALSO: if you're willing to put on your tinfoil hat, the SIVB collapse could have potentially reduced competition for top talent in tech in order to continue to drive down prices.
Whan I put my tinfoil hat on I think that they bailed out the tech industry as returning the favor for the years of cooperation censoring opinions.the government doesn't like.
In that context, raising interest rates to combat "wage inflation" seems misguided.
Inflation can be caused by directly printing money. In modern economies it's more related to things like reserve rates, treasury rates, overnight rates, demand shock, supply constraints, and trusts.
> Ukraine (the most corrupt country in eastern Europe)
Belarus? Russia? Moldova? Albania? No?
> a blank check (not a loan) for administrative salaries, women, and vodka.
Women have mostly become refugees because, you know, their country was invaded by a genocidal maniac and his army are committing a bunch of war crimes. Vodka there is little because russians have been stealing farming equipment (alongside the washing machines and toilets).
No, the real reason Ukraine needs as much help as it can get is because it was invaded by a bigger country and it's very existence is at stake. If one has any moral compass, supporting Ukraine is a no brainer, otherwise one is just supporting a genocide either directly (like trolling online) or indirectly through indifference.
Maybe ... currency-printing equates to 1/2 its value in inflation. I think that makes for a really complicated story where "printing money" creates values out of thin air? In that sense, doesn't that mean "printing money is good"?
But make no mistake, a dollar printed under Trump was just as inflationary as one printed under Biden, even if it was more justified, and you are right that it should be brought up. IMO its even more important to mention the continuous policy of our government covering its deficits by printing money (QE as they call it) which was started under Bush in 2008 and has continued under every president since.
[0] https://open.substack.com/pub/graymirror/p/the-inflation-eco...
https://www.forbes.com/sites/bruceupbin/2011/10/22/the-147-c...
https://www.ted.com/talks/james_b_glattfelder_who_controls_t...
The reality is probably less than 10000 people globally control more than half the wealth in the world, these people control that wealth both individually (billionaires) and professionally (fund managers and board members). This is a result of unequal outcomes from the rise of globalization and the Internet. The world is a more interconnected place, including in finance and business, which squeezes out smaller players and rewards more handsomely cooperation on a global scale.
Nonetheless, all of the evidence, at least in the US, points to small business ownership as being one of the best pathways to financial independence and familial wealth. It is not necessary to create a globally recognized publicly traded company and to become a billionaire to set your family up for success in a way that is not open to most in the world, you can do this simply by finding a niche and excelling in either global niche markets or in your local market.
"Your pay is not tied to any cost of living index."
"Our costs have gone up so we're raising our prices."
Sigh
Even the government is more willing to fight inflation by harming workers than a company's profits.
We'd need more unions - groups with some power over companies who will speak for worker's rights. And while they are starting to proliferate after decades of FUD, their power is also being cut off at the knees by laws that prevent strikes.
It's critical that the jobs be filled, yet those who fill those jobs have no power.
I see that, though it's interesting that Social Security is getting an 8.7% COLA.
Edit: Which is unusual, and new.
Opinion time: One might even say Social Security is primarily used by the cohort with the most time to dedicate to political ventures.
Bluntly, it's a bribe for the Baby Boomer generation to remain loyal to their politicians.
It's better than people being forced to work multiple jobs just to provide the basic necessities for life.
Employee wages are already lagging behind every measure of a employee's worth (productivity, revenue per employee, etc) over time... why do we think it's good policy to fuck them over even more?
Morals matter, even for businesses. Perhaps especially for businesses, given the power imbalance in their favor over ordinary citizens.
Literally everyone should care about an inflationary spiral.
Plus if everyone is auto-raising every employee, that would include lots of well to do professionals, not just those struggling
Because no professionals are struggling? Given how some 80% of people identify as living month to month, and fewer have 3 or 6 months of emergency funds saved up, that seems like it's absolutely not the case.
And frankly, everyone is ignoring the elephant in the room - corporate profits which are at absurd levels. Dial those back, and suddenly you don't have a feedback loop, since you can increase pay without having to raise prices.
But Marx forbid we slow the growth of shareholder wealth to help society at large.
With regards to b, It seems like there were two elements at work, 1. People were generally flush with money and could absorb cost increases, and 2. There was a frenzied period of price hikes/volatility, where everything was in motion and I think most people just said “it’s crazy eggs and steak are this expensive, but it is a few extra bucks I can afford right now, and things will eventually calm down”
The combination of the above led to consumer price inelasticity allowing companies to increase price without effecting volume. I suspect that to change in the coming couple of years as consumer balance sheets and employment weaken, and consumers decide to have two egg omelettes instead of three or buy chicken instead of steak.
I have a very hard time believing that most people in the US simply have too much money. I suspect that most people are struggling, and were struggling even before the pandemic and that people's standard of living is declining, their debit is climbing, and they are just a few missed paychecks away from disaster.
I think that as the pandemic situation improved, people were simply desperate for a sense of normalcy and for the things they'd gone without and they spent more than they could afford, even going farther into debt.
It wasn't "but it is a few extra bucks I can afford right now, and things will eventually calm down" it was "this is more than I can afford, but I need it, and I deserve it, and the world is burning anyway so fuck it". I think to a lesser extent that mentality is still going on, but people are suffering heavily under the increased costs of rent, food, and everything else. Evictions and bankruptcies are increasing and homelessness is rising (https://www.huduser.gov/portal/sites/default/files/pdf/2022-...) and has been for years.
I can't say to what extent greed is the cause of inflation, but I'm pretty confident it's a bigger factor than how much money most Americans are comfortably sitting on.
That doesn’t mean all individuals are well off, but there is no doubt that the economy is flush with extra cash. And since the number of physical goods had not changed, that meant inflation. Which honestly nullified any advantage people got from stimulus (which were temporary).
[1] https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were...
[2] https://fred.stlouisfed.org/series/WM1NS
https://fred.stlouisfed.org/graph/?g=FBGH#
Relevant quote: "In contrast, we argue that the US COVID-19 inflation is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices."
I don't think businesses, or rather the boards and shareholders that run them, care about sustainability - especially if it has a neutral (or, god forbid, negative) impact on short term growth-of-growth or stock prices. If a business goes under because of a lack of sustainable practices, everyone just moves on to a different company.
I'm starting to think that anymore if you want a sustainable business, you can't go public.
In supermarkets I noticed a surplus on top of inflation, and my thought was that people would swallow that because their reference frame for proper pricing was out the door. So they wouldn't notice the surplus, blaming all to inflation. And subsequently getting used to new above-inflation levels as their new reference.
I'd also guess we get supermarket price wars, when inflation get under control, whereby the supermarkets keep their extra margins and pressure the supply chain below to get prices down.
https://fred.stlouisfed.org/series/WM1NS
In the “modern economy”, “modern economists” seem to say it’s not a factor. But gosh, just look at it.
Edit:
> Before May 2020, M1 consists of ... (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.
> Beginning May 2020, M1 consists of ... (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts).
> Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately.
This means the balance of all savings accounts was added to M1 beginning may 2020. If you want to look at "money printed", look at M2. AIUI the definition of M2 was not changed that date and you can indeed see some ~2 trn covid stimulus spread out over a few months in M2.
Coincidentally there’s been a rough doubling in the size of the Fed’s balance sheet, with a familiar spike in 2020.
https://fred.stlouisfed.org/series/WALCL
An item that costs $1, costs $2 when you double the amount money for the same amount of assets.
Headlines are crafted for maximum consumer reach.
Nor is there ever a proposed formula for what the 'correct' money supply should be.
The big critics seem to only be able to come up with Gold standard/bitcoin.
They do not propose how money supply should expand when GDP grows.
They also never talk about relationship between velocity of money and interest rate, and the fact that if velocity of money is low, then the debt of everyone in the economy pile up to infinity, and cause collapse.
They do not address the perverse incentives we have to park vast amounts of money unproductively, instead of investment in the real economy.
The private banks ability to create money is limited by government regulations.
Unless you are proposing that every company in the world is secretly conspiring together to raise prices, I assume you agree with me that the actual source of the increase is the huge influx of money supply that governments created and injected into the economy.
Businesses will absolutely adjust their prices to whatever the market will pay. However, they are dependent on (or follow) inflation for the actual pricing numbers.
One of the major US issues was that the vast majority of the $6,100,000,000,000 in funding the last couple years that was added to the money supply was given to the wealthy via ownership in companies. They used it to purchase commodities, houses, stocks, and many other assets causing the producers of those assets to raise prices to adjust for the inflated money supply.
This means we see houses doubling when really, money supply doubled and our purchasing power halved.
it affect prices of assets, houses, but this does not, in any way, affect prices of food. The entire argument is fictitious.
Regardless, even it if had only been for banks. Anyone was able to borrow nearly interest free money to turn around and spend.
This means anyone (that was wealthy enough) could take their $100k and borrow an additional $X00k they used to purchase assets. When half the purchasing power of the country does that you suddenly have 2x inflation as there are 2x more purchasers (or 2x more money).
Do wealthy borrow money to purchase perishable food?
We've been through this, we've printed money in 2008 and food prices did not increase.
You cant blame every economic problem on money supply
Between 2008 and 2015, the Fed’s balance sheet, its total assets, ballooned from $900 billion to $4.5 trillion. Likewise, food prices also increased.
However, this time we injected over $6 trillion in only a few months. A much faster rate of growth resulting in quickly rising inflation.
You mean like crypto or meme stocks?
Is it really "conspiring" when economists speculate that inflation is coming and businesses fulfill that prophecy to either enrich or insulate themselves? It's not even a stretch, just obvious.
Curious how much inflation would happen if it weren't announced that it's time to do inflation.
Two different things they try really hard to make sure people can’t tell the difference.
This is a common misconception. One big reason it's not true is because the vast majority of the wealth in the economy is stored in assets other than money (real property, stock, bonds, etc.), so doubling the money supply is very different from doubling the amount of wealth everyone has.
Now I imagine some might still be skeptical, but luckily this has been studied, and there are metrics like M2 that represent money supply. If you look at a graph of M2 vs inflation, they look pretty independent, and indeed studies have failed to find any statistically significant correlation between the two.
Inflation is just a tax, a way to tax the poor.
Real Estate, stock, bonds and goods will, in aggregate, go up.
Sure, the distribution is going to be uneven but I wouldn't say "prices of goods are not going up" and then complain you can't afford a house.
Cui bono is definitely at play here.
Secondly, it doesn’t matter where the “wealth” is stored unless it’s sitting in someone’s basement like Scrooge McDuck[0]. The money gets out into the economy through loans and businesses doing business causing prices to rise because there’s more money chasing the same amount of goods.
[0] though, apparently, this is a Silicon Valley thing as was seen by SVB.
Total money supply means that eg doubling the amount of liquidity does not double the price of items, but printing money can cause inflation on goods depending on where that printed money is absorbed. Making free money for building houses is different then sending a check to every American.. but in practice the Gov did the latter and now eggs are more expensive!
Where you add the money makes a big difference!
Unless you suddenly think "rent seeking" jumped right as the Government happened to start printing more money, it sure looks like inflation tracks quite nicely.
Here's a nice investopedia breakdown of how printing money can cause inflation: https://www.investopedia.com/ask/answers/042015/how-does-mon...
The study authors have a different answer about why than you do, though. What they are claiming is that in concentrated markets (like most markets are), shocks like the pandemic allow for firms to raise prices beyond their increased costs, and so increase profits. They have a very interesting graph of after tax profit margins showing that firms in the US are more profitable now than they have been for 70 years, in fact.
Then as inflation increased, companies used that as an excuse too. "We have to raise prices because of inflation! It's not our fault your wages aren't keeping up!" and people believed it even as companies were making money hand over fist and pulling in record profits.
But when Covid lockdowns forced temporary price increases, companies didn't see the backlash. And so they just continue to do it, knowing the average consumer has no choice in many cases.
In USA broadband you have the incumbent cable provider, the incumbent telco and maybe the 5g fixed wireless, which is from a different telco.
In other parts of the economy you will see the same pattern.
It's almost like printing money out of thin air and sticking it in to people's bank accounts, means everyone suddenly has more money and then businesses raise prices to level everything out. WEIRD.
I'm glad we saved all the wfh white collar workers. They totally needed money on top of the money they were making from the job they didn't lose during the pandemic.
Politically, people can disagree with the lockdown, or later stimulus checks and later rounds of PPP.
But I have trouble critiquing the initial response in quickly getting money into the economy.
The initial 2 week response was understandable, everything after was not.
The life and times of a Fortune 50 company.
If companies could raise prices 20% all along, why did they wait till now to do so?
Why not in 2019?
Not that shame was a huge pressure in 2019, but it's even less of one now.
Some percentage of people, even here on this very site, will argue with these conclusions, and say it's the pandemic, or wage pressure, or anything but pricing power, and that percentage of people is higher today than it has been in the past.
The pandemic and political environment provides an excuse that wasn't handy in 2019. The political environment provides cover. The naked greed has always been there (the motive), but the means and opportunity are stronger today than before.
/s
It's all pretty silly.
I can go to the store and buy a TV for half of what it cost me 5 years ago, even with inflation.
Companies push prices down as well as up.
Healthcare, housing, education, food, child care, vehicles, gas, insurance, utilities - all up.
Gas is the same as a decade ago.
Gas is three times more expensive than it was 20 years ago, and even when adjusted for inflation, 60% higher than it was 20 years ago.
What's silly is that the same is true for "a car" if you're as willing to overlook the details as you are with "a TV".
"A house" too! House prices are going down! All you need to do is move from a mansion to a trap house and B-O-O-M you're definitely spending less than half of what you were per month.
If I raise my prices but my competitor down the road doesn't, then I probably lose. At the very least consumer watchdogs will be all over me.
The massive media blitz about how we're in a recession and facing hyper inflation is creating the perfect smokescreen. If I raise my prices now, in current climate, ky competitors will likely follow suit. Because we all know we can get away with playing dumb and pretending it's just inflation.
We have the additional factor that the banking sector may not be able to withstand further interest rate hikes due to bad risk management. Protecting the banking system is pretty much the only thing that could prompt lawmakers into action (eg a windfall profits tax) but these aren't ordinary times.
But this will never happen. It's not even a partisan issue. Particularly since the awful "money = speech" decision [1], both sides of politics are bought and paid for by unchecked corporate power (eg [2]).
Corporate consolidation makes this worse. Terms that might otherwise be illegal like "price gouging" and "price fixing" have been replaced by sanitized legal versions like "price leadership", which is basically the same thing. One company raises prices. The other follows suit.
And for some reason corporate profiteering is fine but workers getting paid more isn't [3]. Weird.
[1]: https://en.wikipedia.org/wiki/Citizens_United_v._FEC
[2]: https://www.independent.co.uk/news/world/americas/us-politic...
[3]: https://www.youtube.com/watch?v=tU3rGFyN5uQ
How does corporate taxation reduce inflation?
Think of it this way: you can either do a $1 billion share buyback or invest $1.3 billion in the business. If we had a 75% profit tax then it would be $1 billion in buybacks or $4 billion in the business.
Additionally, higher interest rates really benefit no one. Higher taxes fills government coffers and allows income distribution to those most in need.
Lastly, interest rates are indiscriminate. They hurt every business and borrower. Taxes only impact profitable businesses to make them slightly less profitable.
Why would investing in business reduce inflation in the general case? That would only be true if production capacity was at it's maximum and the demand is anticipated to remain high.
> Maybe even higher wages
Which will likely increase inflation further.
> Higher taxes fills government coffers and allows income distribution to those most in need.
Which will almost definitely further increase inflation.
> Taxes only impact profitable businesses to make them slightly less profitable.
Why is penalizing successful businesses a good idea?
This is a myth perpetuated by people who simply want to suppress incomes to get slightly higher profits. It's the Tyranny of Austrian Economists combined with Reagan-era trickle-down economics and deregulation that have caused real wages to stagnate for 40 years.
> Why is penalizing successful businesses a good idea?
Why is a good idea that only people with incomes pay income taxes?
Why is it a better idea that everyone pays taxes instead of only those who are profitable paying some of those profits in taxes?
Are you really claiming that more money chasing the same amount of goods isn't going to cause inflation?
> Why is a good idea that only people with incomes pay income taxes?
The context of the discussion was increasing taxes. And you did not explain the mechanism by which increasing corporate taxes is supposed to reduce inflation.
This is a fabricated sequence of events. It's the SEC/CME/FTC, etc's job to verify the following in this example: 1. Did Home Depot raise their prices _more_ than was necessary to respond to increasing consumer demand and decrease supply? 2. Did the suppliers stockpile or falsely report their availability to result in over charging? 3. Did pricing between sawmills/loggers and suppliers increases proportionally? Did pricing between retail and suppliers increase proportionally?
These questions will help to understand possible unnatural inflation was introduced. In the sequence of events the sawmill behavior is just a single indicator along the way.
When people stop buying what they’re selling, we know the product or service isn’t worth it, so the price comes back down.
You won't find it in Marx, Keynes, etc.
When you're selling something people need to survive, like food or medicine, your moral imperative runs in the other direction, and profiteering at the expense of deep need is immoral in the extreme, especially if there are factors preventing competition so you have a captive market, like increased corporate concentration or a government-enforced monopoly.
The only reason capitalism isn't 100% broken is because of regulation. Therefore we must accept that pure free market forces are not the morally superior path.
This is not water in a several-week-long shortage after a hurricane. These are building supplies for several-quarters-long chronic shortages. Delaying having drinkable water is not feasible. Delaying building is.
No, price just puts a floor on the value creation required. It doesn’t actually enforce the efficient use of scarce resources. Beyond that floor, higher prices tends to allocate goods to the people with the most money.
Yeah, because my house is more valuable than yours, as exemplified by the fact that it costs more money to buy lumber for it, so it can create more value. Clearly I'm a more valuable human than you (because I've got more money), and I deserve better and more valuable house.
I wasn’t offering a solution. I was remarking on the idea of we’re just selling to the highest bidder as a universal defense for this behavior. We can recognize it when a grocery store raises the price of water after an earthquake. We should be able to recognize it elsewhere.
My intent was to link the logic OP described with the logic behind price gouging. I didn't think it was expecting too much of the reader to have a negative view of price gouging and therefore view my comment as a criticism of OP's explanation.
Even now I can't be sure whether you think the multi-quarter increase in price of building supplies in 2020 and 2021 was price gouging or not.
I specifically used general terms in my comment. This included using "disaster" instead of "pandemic" or "COVID". I included an "or" in "supply shocks, demand shocks, or both". I also referred to "various industries". I thought collectively that was enough to make it clear that I was speaking more broadly than just referring to OP's specific situation. I don't know exactly were I lost you, was it just the fact that my comment was a direct reply to their and you took that as an indication that I wouldn't speak beyond that initial context?
Obfuscating the true value of something discourages new production, so California remains stupid.
If I'm considering a pricing strategy for my business, want to stay on the good side of the law, and am given a choice between a set percentage and two vague words in which there is no exact definition, give me California's stupidity any day.
[1] https://forisk.com/blog/2021/09/15/sawmill-expansions-in-the...
[2] https://www.timberprocessing.com/sierra-pacific-industries-a...
[3] https://www.forest2market.com/blog/are-you-planning-for-the-...
If it didn't make sense for you to build a sawmill in 2019, it probably didn't make sense to build one in 2021 either.
The few thousands in stimulus dollars was minor compared to two coasts of high income earners wanting to improve / expand their houses to support work from home.
$2,000 is almost nothing when it comes to home improvement. A couple large appliances, or maybe replacing 2 windows + trim.
There was also a huge demand for new houses in areas that traditionally had lower population density, this shift in living location also drove part of the housing boom.
"Laws often include exceptions for price increases that can be justified in terms of the increased cost of supply, transportation, demand, or storage."
IANL Based on the above definition, it sounds like OP is not describing price gouging. Their business is not setting the price of the goods directly. The buyers are competing for a limited supply and pushing each other to bid higher amounts. That sounds like a justifiable increase.
Now, if the mill saw the emergency and said "we won't take less than cost + 45% ..." or something like that, it would likely fall into price gouging territory.
https://www.theguardian.com/environment/gallery/2021/apr/16/...
I promise, spend time in old growth vs forest cleared in the last 150 years. They're completely different places.
If the US actually gave the slightest care about preserving the environment, then they should rein in the companies that are destroying the environment with no chance of nature being able to recover. Cut back on the amount of oil being pulled from the ground and burned, stop bleeding all the rivers dry because of century old water rights, stop creating newer and worse pesticides and stop building bigger and bigger SUVs for the love of god. That it's being done on softwood lumber is entirely a protectionist measure. It has absolutely nothing to do with the valuing the environment; it only matters because the lumber industry has a vested interest in maintaining high prices.
This is auction-style pricing. Good for lumber and some other commodities, but not great if you want to buy eggs, bread, medicine, or gas on the way to work.
>We always sell to the highest bidder. I have no idea how we'd even do it otherwise -- a lumber lottery? All of this reporting about corporate greed is truly dumb.
Well, the other way to sell it is to put a price on it and sell it to the first person willing to pay that price!
You mentioned that you have a lot of competition. That along with auction-style pricing will normally get very close the the WTP ("ideal") price of a product. This is not always possible. It is usually difficult to dial in the "right" price of a consumer product. They can just not buy your chips or cheese! It is no big issue for them and the psychological effect of raising prices for no reason will cause just that reaction. That is why shrinkflation has been a thing.
Imagine having to outbid someone at the grocery store for milk. Or having to outbid someone at the pharmacy for your child's insulin. You can see why certain products cannot be sold to people that way.
Another way of looking at this whole situation is that every company is greedy to some extent. Pricing is hard. And they took advantage of certain events and situations to try new pricing. Many lied about why (claiming supply issues, because saying "we just want more of your money" doesn't sit well with people), which is not cool. If the new pricing sticks then it is probably closer to the "real" price. If it is too high, people will not buy the products and the price may go back down. I say "may" because there is always the possibility that selling fewer items at a higher price might produce more end profit than selling more items at a lower price.
btw, auction-pricing is the wet-dream of every MBA that runs a company. It is the closest thing that people have to find out a person's WTP, for exactly the reason's you outlined in our comment. But you can't do that with loaves of bread, or bacon, or laundry detergent, or nearly anything else.
No. In fact the manufacturer might sell through the distributor that pays the least, if they have high enough sales/coverage (think Walmart) and the total profit is acceptable. Think about selling your product through a mom and pop store that pays you more per item and you clear $1 but they sell 10, or selling 100,000,000 million of your items but you are only clearing $0.05 each. It is much more complicated and larger grocer chains do not have to pay as much wholesale, because they have access to a lot of loyal customers. So they don't compete they way you think and they sure as hell don't have to "bid" on items if they are a large chain. If anything, sometimes it is the reverse, where manufacturers have to pay for self-space and placement. All the ones of a similar size likely sell the product for about the same (in the same demographic area), but may pay different wholesale prices. Or they may not. It is much more complicated. The main point is that it is not like your business. Yours is special and highly-sought after in business, but almost never available.
>We don't sell on auction boards like you're implying. Our sales floor takes calls from buyers, and they makes calls to buyers, and every day our traders close sales on the basis of who's willing to pay the most. It's not that complicated.
Auctions don't have to be complicated. Whenever anyone "bids" on something and the winner gets it, it is auction-style pricing. There are many kinds. The ebay style is one. The one at estate sales or Christie's is another (called open-cry), etc. But it is the holy-grail in business of determining price. The only thing better would be to somehow scan the brain of a person and know the maximum that would pay and charge that.
There's where you lose the thread. They sell to Walmart not because "total profit is acceptable." They do it because they believe it will make them the most money in the long run. Maybe potato chip manufacturers are different than lumber manufacturers, but I doubt it.
I mean that the exact same way you do. If the word "acceptable" is tripping you up, we can substitute "maximize" and it means the same to me.
>Maybe potato chip manufacturers are different than lumber manufacturers, but I doubt it.
I mean, the fact that people call every day to bid on your product and (presumably) the prices changes daily and they don't on theirs, objectively means that it isn't, right?
I agree. The exogenous shocks from Covid (and the shutdowns/working from home) and the money that the govt. lavished on people and businesses caused a lot changes in market dynamics. Some temporary, some seemingly permanent, and some still in flux. As an example, I own rental property on the side. In the town I live in, there hasn't been a decrease in housing and there hasn't been an increase in population. However rents doubled in the span of 3 years. As for why, it seems, they just did it because others where doing it. Taxes didn't go up. Insurance didn't go up. Repairs cost the same. It appears that you can just charge more and people will pay it and so that is what happened.
>There's been so much discussion of price gouging,
When I think of price gouging, I think of someone buying up all of the bottled water after a hurricane and then selling it for 10 times as much when there is no other option available to people. What these companies are doing is testing new price points. In fact, if they are publicly traded and didn't try to maximize shareholder profits they could be facing being ousted or even legal threats.
On a side note, HN has a funny relationship with "price gouging" because many love dynamic pricing (like Uber uses) which is literally price gouging, but if someone tries a new price point on bacon or a dozen eggs they flip the fuck out.
>I know for a fact the pricing was a product of radically increased demand. It seems very likely to me the same is true for potato chips.
I mean, you know your business. I believe you. But there really are companies out there testing new price points just because it is convenient and they won't face the typical backlash from customers because "inflation", or "supply chain issues", or whatever, but really they are just seeing if they can get more profits. This shouldn't be shocking to anyone but it rubs consumers the wrong way when it happens and when everyone does it, it contributes to CPI inflation which people feel at home.
There's all this reporting about corporate greed because the average person think corporations wouldn't do this, and that it is quite bad for corporations to do this.
Or that the media is making a mountain out of a molehill, like they often do.
I mean its a real indictment of the state of America if a $1200 check can just radically reshape the economy. I guess its possible the even larger corporate checks were a factor here too, but I was really surprised that restaurants and other establishments didn't take the time as an opportunity to remodel or update, but obviously there was a lot of fear, probably a lack of willing workers, etc that prevented a lot of that.
As a personal anecdote, I didn't receive any stimulus funds of any sort, but thought a nice covid-safe project would be to get my driveway redone- its a pretty simple outdoor concrete driveway, but no one would do this in all of 2020. I still can't get anyone to do my punch list of small $5-15k projects.
For a small restaurant owner, the combination of these two loopholes created an intense pressure where building out this outdoor seating was simply a requirement of doing business
It sounds like a very small amount of money when you put it that way.
What do you get if you multiply by the number of people who got it?
Also, do you not recall more than one check?
And, yeah, there were lots of other payments in those bills besides the income-tested-only stimulus payments to individuals. (
It was far more than that. There were child tax credits, student loans were paused, evictions were paused, unemployment insurance payouts were massively increased etc. With the covid boosts my wife made no less on unemployment than she did working, and some people got a moderate raise to stay home!
Yes, and also, aside from the general stimulus payments, there was also the combination of a whole lot of unemployment plus federally increased and extended unemployment payments that were designed to approximately, on average, to boost unemployment payments to 100% of last employment level. So you had lots of people with extra time on their hands (whether newly remote workers saving commute or people completely out of work) with less “normal” activities to spend time and money on, with their normal money or more. So, yeah, there were lots of opportunities to knock out household projects that were otherwise being deferred, or to discover and take on ones that hadn’t been planned.
I remember that the day before gmail went into beta, yahoo mail was charging 25 dollars a month for 100mB of storage. Gmail went beta and offered 1 GB for free, and the next day, yahoo mail offered the same thing. They always could have done that, they just had no competition to force them to do it. So they charged artificially inflated prices.
This is what many older people don't understand. Back when they were young, there were many competing businesses in many fields, but now, there are often one or a small number, and they engage in widespread price gouging. Because they can.
This is the natural evolution of a capitalist economy- no conspiracy is required. The point of competition is, after all, to win, and after you win, you get to set the price of goods and services to be whatever you want it to be. Just ask Martin Skreli. Price fixing in this country is ubiquitous and standard practice. In that case, sometimes the government can step in and introduce competition to a market where there is none- as California is doing to insulin- or they can regulate prices- as they do with power.
If you remember before gmail, then you are ancient.
Tell us, gramps, more about these $25/month Yahoo! email accounts.
It was just an example. I think it’s a pretty good example, I remember thinking, wait, yesterday it was 25 a month and now you get 10 times as much for free?? How does supply and demand explain that?
Anyways the people making most of the decisions in our society are 30 years older than me.
Now, your iPhone, prescription drugs, favorite personal products, chicken, meat and eggs are a different story. These markets are controlled by a few dominant producers that distribute through tightly controlled retail markets and hold great pricing power.
Lumber initially shot up if I recall due to a supply issue when covid caused mills to shut down with limited labor supply and even outright restrictions to operation by local governments. It subsequently whipsawed to much lower prices once mills came back online as evidenced by the volatile lumber spot prices shown here:
https://markets.businessinsider.com/commodities/lumber-price
As for corporate profits and their impact on recent inflation, see the following article which states:
“Since the trough of the COVID-19 recession in the second quarter of 2020, overall prices in the NFC sector have risen at an annualized rate of 6.1%—a pronounced acceleration over the 1.8% price growth that characterized the pre-pandemic business cycle of 2007–2019. Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase. This is not normal. From 1979 to 2019, profits only contributed about 11% to price growth and labor costs over 60% …”
https://www.epi.org/blog/corporate-profits-have-contributed-...
This is the primary source of inflation. Secondary is removing millions from workforce so that less things are produced.
Articles like this are trying to shift blame away from the government.
In the face of all this money, corporations can do a few things:
1. Change nothing, allowing the first customers to buy everything and leave shelves empty.
2. Ration, choosing which customers merit being sold to, or restricting the quantity that any particular customer can buy.
3. Raise prices until the pressure is equalized and people don't empty the shelves.
The cost of inputs doesn't matter too much, except to the extent that they might actually reduce production if they aren't able to pass some/all of these costs on with higher prices.
People pay for it because they don't have a choice.
>Change nothing, allowing the first customers to buy everything and leave shelves empty
The ridiculous economic rationalization. "Hey everyone, we increased the price by 30% so we keep more on the shelves by pricing out the lower/middle class!"
You sound like you are just out of a micro economics class and think everything "has to work this way". What you don't realize is that your ENTIRE MINDSET is viewed on MAXIMIZING PROFITS for that SPECIFIC CORPORATION and not the overall welfare of society. You also assume EVENLY DISTRIBUTED WEALTH if you are disregarding the welfare of society.
If I run a donut shop and can produce 100 donuts a day. According to you, the only way to run the business is to charge as much as possible to still sell ~100 donuts so I can make the most profit. What if by selling them at a reasonable price, everyone is able to afford them and we are still able to pay our workers and ourselves well? Gasp! Another solution presents itself which makes the overall society better off. It doesn't have to be about charging as much as possible, where that extra money will just go to the owner and not the workers anyway.
3 choices were given.
Almost everything has substitutes. I did some construction projects these past years, and because lumber prices are up, there's a lot more metal in my construction. Metal siding and roof for a goat shed, metal studs in new walls. Those were always options I wouldn't have normally chosen. The metal goat shed is likely going to last longer, which is nice, but the metal studs in the wall don't provide a benefit, other than cost/availability.
When all the items in the category go up, there's not much substitution to be had, of course.
Yes I know that other foods exist.
Maybe that was sarcasm and I missed it..?
If you're eating for example beans and rice as the base of your diet you're already near the bottom of possible prices for sustenance. Sure junk food is cheaper per calorie in the short term, but we don't have public healthcare where I live and you're just signing up to be publicly shamed for your health problems later.
Rice has many suppliers and a couple types, but if that's not enough, other grains are available. If the cost of rice has gone up, some of those other options look more appealing.
I understand this doesn't help if you're already at the maximum cal/$ and now those items are more expensive. But in that case, the problem isn't there's no substitute, the problem is there's no affordable substitute.
Fixing the price of rice, so that people with low income can afford it doesn't work when there's low supply, either though. In that case, they can afford it, if it's in the shop, but chances are it will be out of stock. And you still have the hard/impossible problem of how do I eat when I can't afford food?
For reasons (quality, scale) you can only produce 100 donuts a day. Definitely no more.
On an average day, you have 200 potential customers. Busy days, closer to 400.
A donut costs you $0.20 to make (incl labor).
Do you sell them for $0.20 each and let the first person in the door buy all of your donuts for $20? Do you ration them and let each person only buy one? (Sorry mom! Guess you have to split with the kids.) You have not benefitted anyone! You have made the situation worse.
No, you raise the price of your donuts to $5 or so. Some people will buy a couple but most people in the front of the line will get a donut still.
This is literally what the super famous donut shop near me does! Buying a dozen donuts from them would be like $60+, but almost everyone can buy a donut or two.
Raising prices for a limited commodity when literally not everyone who wants one can get one is the best strategy.
> everyone is able to afford them
It doesn't matter if all 400 people in line could afford them if the first person in line buys them all!
i seem to recall they did this with ps5, and same for iphone in the old days during launch... its not novel idea imo... e.g "limit one dozen donuts per customer" etc
But that money has to come from somewhere. Money is not infinite from the perspective of any individual actor.
If you spend more on gas and 2x4s you have to spend less on something else. Consumer and business credit makes this kind of fuzzy but for the most part it holds.
>If I run a donut shop and can produce 100 donuts a day. According to you, the only way to run the business is to charge as much as possible to still sell ~100 donuts so I can make the most profit. What if by selling them at a reasonable price, everyone is able to afford them and we are still able to pay our workers and ourselves well? Gasp! Another solution presents itself which makes the overall society better off. It doesn't have to be about charging as much as possible, where that extra money will just go to the owner and not the workers anyway.
What are the margins on this hypothetical donuts shop and what do you do when the price of labor goes up 20%, energy goes up 80% eggs goes up 100%?
Sure the prices have to increase. But what if they just increased by the amount that it actually cost? And then decreased as those costs go back down?
That's the entire discussion here- corporations are increasing by WAY MORE than what the raw inputs cost.. otherwise they would not be making more profits. And then are not proportionality decreasing as their costs go back down.