'markup growth”—the increase in the ratio between the price a firm charges and its cost of production—was a far more important factor driving inflation in 2021 than it has been throughout economic history.'
So the government tracks wages and unemployment, and sharply reacts when wages grow too fast.
But when it comes to profits, they can't even tax them correctly, let alone react to profits driving inflation.
Wouldn't agressive taxation be an alternative to raising interest rates in tackling inflation? Both reduce avaliability of capital.
Is there any reason why raising interest rate is 'fair' but a temporary 'inflation tax' is unfair?
I don't think it's about being fair or unfair... I just think it's the only pedal the Fed has. And the Fed is the only body that is able to make actions right now.
Taxes would be a great vehicle for this, because they would probably do a much better job of filling the fed's dual-mandate. But because the fed can't raise taxes, and congress can't do literally anything, we're stuck with the response that we have where a non-elected body is leaning on the only lever it has to run our economy.
Actually the profit margin might be worth looking at.
Corporations typically are charged a flat percentage tax rate.
One could charge corporations a progressive tax rate, just like people.
You continue to tax corporations just on profits, but the higher the margin (profit/revenue) the higher tax rate.
It disincentivises gouging and could even bring in more revenue for the state (less need to over tax people).
It would also make it harder for the wealthy to dodge tax by billing what should be personal income via corporate shell structures as in most cases that revenue would appear as > 90% profit, attracting a very high tax.
For instance suppose the marginal buyer would spend $20 for a product and the producer can produce for $18 and the market price is $19, resulting in $1surplus to each party. If a $3 tax was put on the product, the transaction wouldn't take place.
So you went from $2 social surplus to nothing and no tax benefit.
Any arbitrary price distortions will result in dead weight loss or the overall social surplus to go down compared to no distortion
Aha. So it's not the politically-connected who manage to keep IRS at arms-length. No. It is 'something but not political connections' that manages to frustrate the unjust greed of the "plitically connected" to tax rightfully earned profits of these corporations. Must be the "hand of God" ..
Meanwhile, Goldman strategists are predicting this quarters earning season will be the worst for profits/EPS since the start of the pandemic.
> Earnings per share are expected to decline 7% year-over-year, according to a note from the bank published this week, along with a "significant deterioration" from the -1% year-over-year growth posted in the last three months of 2022.
Your statement is factually wrong. The article doesn’t claim Goldman strategists are predicting the worst quarter for profits/EPS since the start of the pandemic. They are predicting the steepest YoY decline in profits/EPS. By about 7%.
There’s a huge difference. What they’re predicting probably means profits will still be a lot higher than many quarters in the pandemic, and much higher than Pre-pandemic profits.
Most of the 2010s had EPS in the 20s. The late 2010s (2018 onwards…right after the massive tax break incidentally) has an EPS in the 30s.
It drops to the teens in the beginning of the pandemic, rising to peak above 50, and is still in the mid 40s. A 7% drop would still keep EPS in the 40s, well above anything it touched Pre-pandemic.
What’s worst is that this is with the backdrop of a much stronger dollar than ever, which means that these dollar earnings are increasing after compensating for conversion losses from the RoW, which indicates American consumers are being charged a lot more money.
Numbers like this are really confusing. Ok there is an year on year decline of 7%. But how does that compare to previous years? Did they grow dramatically and now they are losing some steam? Or has it been declining for the last few years?
One of the biggest losers is supposed to be healthcare(20%). Is that because they had a huge spurt because of the pandemic and now there is a reduction? I am not sure what the other industries are so I am not sure what to make of it.
As if corporations suddenly became greedy over the last couple of years but haven't been over the previous four decades. Corporations purpose is to maximise profits. To expect otherwise is a fools errand.
No one is arguing to the contrary. A functioning market based economy shouldn't tolerate massive inflation fuelled by greed, as your competitors should undercut you.
The original article is. The whole thing is presented as if it's some moral failure on the part of CEO's. Their only solution is price controls. There isn't one mention of breaking up the huge number of monopolies which dominate nearly every area of commerce.
Prices are sticky. There were prices that hadn't changed for 20 years. Consumers notice when prices change. In normal times, a small increase in prices can have a massive impact on sales.
But when every other price is changing it becomes easier to change your price. And so suddenly you get 20 years of cost increases in a single jump.
Except that prices, in general, have been rising over the past 20 years.
And yes, we've noticed it, and so have people around us. My in-laws have been frequently heard complaining about price increases on products (their grumbling tends to start with how the price has increased since last year, then go on to declare what they remember paying for it in about 1965...).
We've also had rampant shrinkflation during that time. Remember, for instance, how ice cream used to be regularly sold in half-gallons? But now is instead sold in 48oz tubs, without any particular acknowledgement of the change.
But when the price increases aren't localized to one specific store, it doesn't matter that people get annoyed at it. Worst case, they'll just start buying less of the thing.
I assume there is some game theory and psychology going on here. You have to remain competitive and people notice a price hike, but if there is inflation maybe companies can collectively sneak more margin in.
This. There is no point in expecting capitalists to do anything different. This is a failure of regulators. If you want it to stop, you must: a) Break up monopolies, b) Go after collusion, c) Tax excess profits, d) Disallow mergers and industry consolidation. Unfortunately, in the U.S. the regulators have been sleeping for going on 50 years (with only a few exceptions), and now we have major media, broadband, electricity, gas, utilities, and many other industries consolidated to only a few corporations. Capitalism will always be a war of attrition between industrialists and regulators, and anyone expecting different needs to grow up. Further failure to act will allow a corporate state to coalesce with oligopolistic lock-in. We cannot expect Noblesse Oblige or anything like it: The 5-day 40-hour work week, vacation pay, child labor laws, pensions, were fought for and won by Unions and Labor. No greedy capitalist ever had a conscience, only their wives or children gave away money.
> If you want it to stop, you must: a) Break up monopolies, b) Go after collusion, c) Tax excess profits, d) Disallow mergers and industry consolidation.
That still allows growth to a dangerous size. A more simple solution tgat avoids worrying about details would be to limit maximum size in general, to guarantee that there is competition.
I recently visited Italy and was shocked at just how much cheaper it was for everything. Wasn’t Europe supposed to be facing massive inflation due to extremely high energy prices?
Sure, the cost of gas was high. And yeah, the dollar is extremely strong (although a strong dollar should have made things cheaper in the US with net imports), but even using a dollar/Euro conversion rate at its historical peak (about 1.6 dollars to the Euro), had things way cheaper.
Eating at the finest fine dining restaurant in Milan was as expensive as a sit down meal at a regular restaurant in the US. And that’s before adjusting for the fact that the US sticker prices did not include tax and you needed to pay 20% tip.
I’ve been to Italy before and while it was never expensive, this was the first time I felt it was cheap.
The U.S. feels poor. Italy feels so much more advanced. Despite the fact that the latter has a fraction of the per capita income of the former.
What are you talking about? There are plenty of €100+ per person fine dining restaurants in Milan while the average sit down restaurant in the US charges around $20-30 per person. Whatever restaurant you went to wasn’t fine dining or you are used to prices in a very expensive (and outlier) part of the US.
I'm not sure one can characterise a couple of months rent payments (over the course of 2+ years) as "massive amounts of cash"
The vast majority of government handouts during covid went not to consumers, but to the very corporations now raising prices - $400 billion in PPP loan forgiveness alone is a hell of a handout to corporate america.
The “massive amounts of cash” was a fraction of the tax cuts that were given to corporations and the richest prior to the pandemic for no reason at all.
At least these massive amounts of cash came in response to a disproportionately more massive world event.
And yet I don’t see complaints about that massive handover of cash which wasnt even in response to a problem.
Price control, rent control, capital flow controls and generally any policy that try to hamfistedly go against the invisible hand of the market have indeed failed repeatedly and catastrophically when used over a long period.
However, as Keynes pointed out, in the long run we're all dead and yet the free market works its magic over the long run. In the short term, there's panics and opportunists that destructively exploit crisis situations. I think it was Stiglitz who pointed out that a few countries that temporarily blocked capital flight during the 90s Asian crisis recovered much more quickly than the rest.
Shouldn’t this partly be addressed with rising interest rates? Depress the economy so the consumer is more frugal and unwilling to pay these marked up prices
Readit News
So the government tracks wages and unemployment, and sharply reacts when wages grow too fast.
But when it comes to profits, they can't even tax them correctly, let alone react to profits driving inflation.
Wouldn't agressive taxation be an alternative to raising interest rates in tackling inflation? Both reduce avaliability of capital.
Is there any reason why raising interest rate is 'fair' but a temporary 'inflation tax' is unfair?
Taxes would be a great vehicle for this, because they would probably do a much better job of filling the fed's dual-mandate. But because the fed can't raise taxes, and congress can't do literally anything, we're stuck with the response that we have where a non-elected body is leaning on the only lever it has to run our economy.
They can, but corruption is getting in the way of doing so.
Because the former puts more burden on average citizens and the latter would hurt the ruling class.
Corporations typically are charged a flat percentage tax rate.
One could charge corporations a progressive tax rate, just like people.
You continue to tax corporations just on profits, but the higher the margin (profit/revenue) the higher tax rate.
It disincentivises gouging and could even bring in more revenue for the state (less need to over tax people).
It would also make it harder for the wealthy to dodge tax by billing what should be personal income via corporate shell structures as in most cases that revenue would appear as > 90% profit, attracting a very high tax.
thou imho the point is that this increase in markup has to go somewhere it didn't before, which in turn suggests a decrease in efficiency.
Deleted Comment
For instance suppose the marginal buyer would spend $20 for a product and the producer can produce for $18 and the market price is $19, resulting in $1surplus to each party. If a $3 tax was put on the product, the transaction wouldn't take place.
So you went from $2 social surplus to nothing and no tax benefit.
Any arbitrary price distortions will result in dead weight loss or the overall social surplus to go down compared to no distortion
Dead Comment
Dead Comment
> Earnings per share are expected to decline 7% year-over-year, according to a note from the bank published this week, along with a "significant deterioration" from the -1% year-over-year growth posted in the last three months of 2022.
https://www.businessinsider.in/stock-market/news/investors-s...
There’s a huge difference. What they’re predicting probably means profits will still be a lot higher than many quarters in the pandemic, and much higher than Pre-pandemic profits.
https://ycharts.com/indicators/sp_500_eps
Most of the 2010s had EPS in the 20s. The late 2010s (2018 onwards…right after the massive tax break incidentally) has an EPS in the 30s.
It drops to the teens in the beginning of the pandemic, rising to peak above 50, and is still in the mid 40s. A 7% drop would still keep EPS in the 40s, well above anything it touched Pre-pandemic.
What’s worst is that this is with the backdrop of a much stronger dollar than ever, which means that these dollar earnings are increasing after compensating for conversion losses from the RoW, which indicates American consumers are being charged a lot more money.
One of the biggest losers is supposed to be healthcare(20%). Is that because they had a huge spurt because of the pandemic and now there is a reduction? I am not sure what the other industries are so I am not sure what to make of it.
The original article is. The whole thing is presented as if it's some moral failure on the part of CEO's. Their only solution is price controls. There isn't one mention of breaking up the huge number of monopolies which dominate nearly every area of commerce.
All of those stimmy checks had to end up somewhere. Classical economics predicted the consequences of the Covid monetary response. It’s been textbook.
And yet we want to blame everything else except the actual causes.
But when every other price is changing it becomes easier to change your price. And so suddenly you get 20 years of cost increases in a single jump.
And yes, we've noticed it, and so have people around us. My in-laws have been frequently heard complaining about price increases on products (their grumbling tends to start with how the price has increased since last year, then go on to declare what they remember paying for it in about 1965...).
We've also had rampant shrinkflation during that time. Remember, for instance, how ice cream used to be regularly sold in half-gallons? But now is instead sold in 48oz tubs, without any particular acknowledgement of the change.
But when the price increases aren't localized to one specific store, it doesn't matter that people get annoyed at it. Worst case, they'll just start buying less of the thing.
That still allows growth to a dangerous size. A more simple solution tgat avoids worrying about details would be to limit maximum size in general, to guarantee that there is competition.
Dead Comment
Sure, the cost of gas was high. And yeah, the dollar is extremely strong (although a strong dollar should have made things cheaper in the US with net imports), but even using a dollar/Euro conversion rate at its historical peak (about 1.6 dollars to the Euro), had things way cheaper.
Eating at the finest fine dining restaurant in Milan was as expensive as a sit down meal at a regular restaurant in the US. And that’s before adjusting for the fact that the US sticker prices did not include tax and you needed to pay 20% tip.
I’ve been to Italy before and while it was never expensive, this was the first time I felt it was cheap.
The U.S. feels poor. Italy feels so much more advanced. Despite the fact that the latter has a fraction of the per capita income of the former.
- lockdown ends: everything is 30-100% more expensive.
as george carlin said, "they want it back".
The vast majority of government handouts during covid went not to consumers, but to the very corporations now raising prices - $400 billion in PPP loan forgiveness alone is a hell of a handout to corporate america.
At least these massive amounts of cash came in response to a disproportionately more massive world event.
And yet I don’t see complaints about that massive handover of cash which wasnt even in response to a problem.
Deleted Comment
We've just had a period of extraordinarily low interest rates, government checks going directly to citizens, and constrained supply chains.
Why blame inflation on anything but the obvious?
However, as Keynes pointed out, in the long run we're all dead and yet the free market works its magic over the long run. In the short term, there's panics and opportunists that destructively exploit crisis situations. I think it was Stiglitz who pointed out that a few countries that temporarily blocked capital flight during the 90s Asian crisis recovered much more quickly than the rest.