Please, multiple studies were done about the causes of the recent wave of inflation and they determined that the vast majority of it was a result of greedy corporations taking the opportunity to boost their profits.
Modern Monetary Theory is complete BS, look at Argentine, Venezuela, and Turkey to see why monetary policy shouldn’t be political
There’s little more consistent in this world than corporate greed, and corporations didn’t suddenly decide to be more greedy in 2020 and 2021.
For 1, talk to any respected economist and they’ll tell you MMT is a popular minority view but far from mainstream and very much riddled with criticism.
Ball and colleagues conclude that the rise in the ratio of job vacancies to unemployment contributed almost a third of the rise in core inflation of 2.0 percentage points over a 12-month period. The 2.0-percentage-point increase in inflation explains about half the rise in core inflation, climbing from 2.3 to 6.9 percent (total increase of 4.6 percentage points). And finally, they found that the main contributors to the headline inflation shocks were energy prices (2.7 percentage points) and a backlog of work (1.7 percentage points).
Backlog of work is a nice way to say people weren’t producing, but were still spending. And energy prices spiked because of the recovery (energy consumption dropped during COVID and recovered when restrictions were lifted}.
In my analysis, inflation mostly came from the government’s $5 trillion in COVID and post-COVID deficits. The government essentially sent people $5 trillion with no plans to pay the money back. People tried to spend it, driving up prices. The Fed eventually raising interest rates made inflation come down a bit faster than it would have otherwise, but it was going to go away on its own anyway. There is no magic momentum to inflation. Stop pushing, and it stops.
For example, the Federal Reserve was far too late identifying inflation in its early days, choosing to frame it as transitory. As a result, the Fed kept interest rates too low for too long. Congress was guilty of massive spending increases, which caused demand to surge. In short, an artificially induced demand and a drastic shortfall in supply were the culprits in creating inflation.
Those aren’t cherry picked either, they’re the top sources when I search for causes of inflation, and is a mix of government, academic, and “mainstream” financial analysis.
From what I’ve read, here’s what seems like the most credible explanation:
COVID happens and governments issue stay at home orders, cutting production and energy use, resulting in supply chain disruption (esp in the car industry, demand for cars dropped off a cliff during COVID)
Reduced energy demand reduces fossil fuel prices, so production reduces
Stay at home orders spark consumer demand for things to do at home (electronics, home renovation, etc), and stimulus money fuels this demand
Supply can’t keep up with 3 because of 1, so prices surge (direct consumer impact, but mostly localized)
Return to work spikes demand for energy, causing energy prices to spike (major component of inflation) as production ramps back up
Corporations didn’t increase prices because they all of a sudden decided to screw the consumer, they increased prices because demand went up (people had more to spend) and supply was limited. If corporations are jacking up prices, it’s not because they decided to be greedy (they’re always greedy), it’s because something changed that allowed them to change prices.
Look, I don’t doubt that some of what you outlined had a role in inflation. But unlike you, I think that absolving corporations of blame here is the real copout.
Your last paragraph makes it sound like the poor, innocent corporations didn’t have a choice and were forced to crank their profits up when they saw a $$$ opportunity, because what else were they to do in the middle of a pandemic ravaging the country? Poor angels!
I’m not making a value judgment here, I’m merely talking about how economics works.
The whole purpose of a corporation is to generate profit, and to do that it needs to convince customers to buy from them. If there’s sufficient competition, corporations may appear to be acting “good,” but that’s only because the profitable option benefits customers.
Yes, profit and inflation are linked, but it’s important to understand both what allowed increased profits (in this case supply disruption) and the consequences. From your article:
A spike in profit margins contributed significantly to inflation in the early part of the pandemic recovery, and likely contributed to even more persistent inflationary pressure by helping spur a countervailing rise in nominal wage growth.
It’s not just profits, but real wage growth. If you’ll remember, there was a labor shortage during and just after the pandemic, which led to workers demanding increased pay. Fast food jobs, for example, typically paid $8-9/hr in my area, with “better” chains (the ones for whom better customer service was their competitive advantage) offering $12/hr. During and just after the pandemic, $12 was the normal fast food wage, and the “better” chains jumped to $15+. My state still uses the federal minimum wage ($7.25/hr), so it’s not legislative action, but shifts in wage expectations that resulted in wages going up, which justifies the higher prices for fast food (fast food is incredibly price competitive).
Continuing on with your source:
instead of suppressing wages, they raised prices. If this episode increases public support for measures that constrain excess corporate power, that would be good even if it has little relevance for inflation in the future.
Both prices and wages are sticky, especially in less competitive industries. But prices do come down relative to inflation over time, provided the market is competitive enough. Look at car prices, they were sticky until well after supply returned to normal because demand for cars remained high, but now car prices are largely back to normal, relative to inflation, because it turns out higher volume is usually better than higher margins.
The same pattern will happen to eggs, but even faster because the cycle time to bring getting a new batch of egg laying hens is comparatively short (5-6 months from hatching to producing eggs), and the customer purchase cycle is rapid.
To understand what’s going on, we need to understand why corporations could get away with increasing prices:
Supply was constrained due to global supply chain factors; if your competitors all sell out, people will come to you and your higher prices (also why scalping works)
People had extra cash (stimulus, less activities outside)
Production costs increased due to shortages (lots of great excuses)
Yes, they cranked up profits when they saw an opportunity. I don’t see that as “bad,” I see it as expected. Corporations exist to generate profits, so if life gives you lemons (supply chain disruption), you make lemonade (increase margins on the supply you have).
What I do see as “bad” is corporations getting away with violating the law with essentially a slap on the wrist. There are two main ways to fix bad corporate behavior:
stiff competition
lawsuits
And when the first fails, the second just isn’t sufficient to actually change behavior, since fines are merely a cost of doing business. Raising prices itself isn’t illegal, colluding with competitors absolutely is, and the penalties need to more than account for the profit from colluding.
Please, multiple studies were done about the causes of the recent wave of inflation and they determined that the vast majority of it was a result of greedy corporations taking the opportunity to boost their profits.
Also: https://en.wikipedia.org/wiki/Modern_monetary_theory
For 1, talk to any respected economist and they’ll tell you MMT is a popular minority view but far from mainstream and very much riddled with criticism.
For 2, blaming corporations is an absolute copout. Here’s the US BLS’s official statement on the causes of inflation:
Backlog of work is a nice way to say people weren’t producing, but were still spending. And energy prices spiked because of the recovery (energy consumption dropped during COVID and recovered when restrictions were lifted}.
Here’s a discussion with John Cochrane about inflation causes, and he argues the main cause is stimulus spending because the government had no plan to fund it:
Here’s a Forbes article about it:
Those aren’t cherry picked either, they’re the top sources when I search for causes of inflation, and is a mix of government, academic, and “mainstream” financial analysis.
From what I’ve read, here’s what seems like the most credible explanation:
Corporations didn’t increase prices because they all of a sudden decided to screw the consumer, they increased prices because demand went up (people had more to spend) and supply was limited. If corporations are jacking up prices, it’s not because they decided to be greedy (they’re always greedy), it’s because something changed that allowed them to change prices.
Look, I don’t doubt that some of what you outlined had a role in inflation. But unlike you, I think that absolving corporations of blame here is the real copout.
Your last paragraph makes it sound like the poor, innocent corporations didn’t have a choice and were forced to crank their profits up when they saw a $$$ opportunity, because what else were they to do in the middle of a pandemic ravaging the country? Poor angels!
https://www.epi.org/blog/profits-and-price-inflation-are-indeed-linked/
I’m not making a value judgment here, I’m merely talking about how economics works.
The whole purpose of a corporation is to generate profit, and to do that it needs to convince customers to buy from them. If there’s sufficient competition, corporations may appear to be acting “good,” but that’s only because the profitable option benefits customers.
Yes, profit and inflation are linked, but it’s important to understand both what allowed increased profits (in this case supply disruption) and the consequences. From your article:
It’s not just profits, but real wage growth. If you’ll remember, there was a labor shortage during and just after the pandemic, which led to workers demanding increased pay. Fast food jobs, for example, typically paid $8-9/hr in my area, with “better” chains (the ones for whom better customer service was their competitive advantage) offering $12/hr. During and just after the pandemic, $12 was the normal fast food wage, and the “better” chains jumped to $15+. My state still uses the federal minimum wage ($7.25/hr), so it’s not legislative action, but shifts in wage expectations that resulted in wages going up, which justifies the higher prices for fast food (fast food is incredibly price competitive).
Continuing on with your source:
Both prices and wages are sticky, especially in less competitive industries. But prices do come down relative to inflation over time, provided the market is competitive enough. Look at car prices, they were sticky until well after supply returned to normal because demand for cars remained high, but now car prices are largely back to normal, relative to inflation, because it turns out higher volume is usually better than higher margins.
The same pattern will happen to eggs, but even faster because the cycle time to bring getting a new batch of egg laying hens is comparatively short (5-6 months from hatching to producing eggs), and the customer purchase cycle is rapid.
To understand what’s going on, we need to understand why corporations could get away with increasing prices:
Yes, they cranked up profits when they saw an opportunity. I don’t see that as “bad,” I see it as expected. Corporations exist to generate profits, so if life gives you lemons (supply chain disruption), you make lemonade (increase margins on the supply you have).
What I do see as “bad” is corporations getting away with violating the law with essentially a slap on the wrist. There are two main ways to fix bad corporate behavior:
And when the first fails, the second just isn’t sufficient to actually change behavior, since fines are merely a cost of doing business. Raising prices itself isn’t illegal, colluding with competitors absolutely is, and the penalties need to more than account for the profit from colluding.