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.
Corporations can get away with unreasonably and unjustifiably raising prices because government power to control them decreases year by year, and is just about to be completely extinguished in the US by the current administration. Same thing with corporations violating the law - it’s just a little further behind. This has been a continuous process of the people with money and power dismantling all the systems that can keep them in check over the last several decades.
Corporations can raise prices however they want because there’s no law against it. There may be for declared emergencies (e.g. hurricane or something), but other than that, prices are kept in check by market forces. If supply dips, prices go up to keep some inventory on the shelves, and if supply exceeds demand, prices will drop to move inventory. That’s how it works, regardless of who controls the White House.
and is just about to be completely extinguished in the US by the current administration
That’s alarmist BS. The President cannot change the law without a bill passed by Congress, so the next President can reverse whatever EOs make it past judicial review. The GOP has a narrow majority in Congress, so that’s going to put a damper on what Trump can do long term.
Yes, Trump can cause a lot of damage, and that’s likely to happen, but that damage can be reversed. The critical bit here is Congress, and we’ll have midterms to determine whether people like the direction the GOP is taking or they want something different. I think a likely outcome is that inflation goes up (if Trump makes good on tariff threats), the Fed tightens monetary policy, and Trump is forced to either lighten up or lose the midterms. It’s also likely that Trump is bluffing and just looking for some meaningless concessions so he can claim a win. We’ll see. But I highly doubt we’ll see systemic change in any meaningful way.
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.
Corporations can get away with unreasonably and unjustifiably raising prices because government power to control them decreases year by year, and is just about to be completely extinguished in the US by the current administration. Same thing with corporations violating the law - it’s just a little further behind. This has been a continuous process of the people with money and power dismantling all the systems that can keep them in check over the last several decades.
Corporations can raise prices however they want because there’s no law against it. There may be for declared emergencies (e.g. hurricane or something), but other than that, prices are kept in check by market forces. If supply dips, prices go up to keep some inventory on the shelves, and if supply exceeds demand, prices will drop to move inventory. That’s how it works, regardless of who controls the White House.
That’s alarmist BS. The President cannot change the law without a bill passed by Congress, so the next President can reverse whatever EOs make it past judicial review. The GOP has a narrow majority in Congress, so that’s going to put a damper on what Trump can do long term.
Yes, Trump can cause a lot of damage, and that’s likely to happen, but that damage can be reversed. The critical bit here is Congress, and we’ll have midterms to determine whether people like the direction the GOP is taking or they want something different. I think a likely outcome is that inflation goes up (if Trump makes good on tariff threats), the Fed tightens monetary policy, and Trump is forced to either lighten up or lose the midterms. It’s also likely that Trump is bluffing and just looking for some meaningless concessions so he can claim a win. We’ll see. But I highly doubt we’ll see systemic change in any meaningful way.