> While this obviously contributed to rising prices, the report finds that company profits increased at a much faster rate than costs did, in a process often dubbed “greedflation.”
I think there is this expectation that companies "should" only raise prices necessary to cover their cost increases. But companies charge what the market can bear and, depending on the specific circumstances, this could be equal to, less than, or more than the cost increases.
To use a HN-friendly example, let's say AWS cuts their EC2 costs. If you're providing an undifferentiated computation service using EC2, you'll likely have to cut your costs or you will lose all your business to your competitors. If you're providing a highly differentiated SaaS product, you can probably keep the cost savings to yourself.
You can reason in the opposite direction for price hikes. Depending on the exact company in question, they could be in a privileged position of the supply chain or have marketing power that allows them to increase prices even more.
One main difference here is price stickiness [1], i.e. prices tend to be fixed for a period of time, even if the underlying economics has changed. I think this is underlying reason for perceptions of "greedflation" because, during period of inflation, prices become less sticky and companies use this to adjust prices to better match the underlying economics.
In a free and competitive markets, this would not have happened, or at least would quickly be corrected for by new sellers.
This is solid evidence that we do not have a free and competitive marketplace for most goods and services. That is the problem and its gets worse every day.
It still fucking sucks that price increases put even more pressure on people under and around the poverty line.
The economy isn't just some abstract numbers game, there are real people living in it.
The expectation that companies shouldn't juice more money out of customers who will suffer (or at the very least have to lower their living standards, which isn't as bad but is still not awesome) because of it is a very justified one.
There are no free lunches. The idea that inflation can be curbed by companies being more empathetic is wrong. If they don't raise prices during a spate of inflation, then they'll have to fire workers or make other cuts.
2. but also if other countries print money, it can still cause inflation in your country.
3. and you can't stop them from doing that.
So "don't do it" won't save you. You also need diplomacy and an army.
Also, a better explanation of the theory isn't "money printing" but "higher money velocity" aka MV=PY, which is why it's managed with interest rate hikes.
A day ago: "Greedflation: Corporate profiteering 'significantly' boosted global prices,study"[0] (218 points, 172 comments, different URL, same source)
There's a theory, price-over-volume, that the sudden shift in demand and expectation of inflation gave companies room to explore a different point on the revenue curve, where they increase the price and simply sell less volume. Prior to the pandemic this was risky and people assumed they were near optimal already. During the pandemic a bunch of companies learned they could push on price, sell less, but still make more revenue. All companies did this independently and simultaneously so the usual competitive effects didn't kick in. And now we're at a new equilibrium that the few companies in each industry are happy with.
Plenty of industries raised prices with very little effect on volume, however, it was not truly "independent", companies can easily coordinate by sending signals via forecasts, press releases, news leaks, etc. If P&G and Unilever both decide to raise the price of soap and toothpaste, are you going to shower or brush less? Meanwhile demand exploded on discretionary spending like travel, restaurants and recreation despite price increases.
The linked study explains this, it's a mix-up of market power, global shake-ups, supply chain issues, and essential needs that affected normal market forces to self-regulate.
You've got these big companies that dominate and make it tough for competitors to get a foot in the door.
The pandemic threw supply chains into a tailspin, leaving folks with fewer choices and companies with the goods charging top dollar. Post Covid/Ukraine, these same companies found themselves suddenly holding all the cards, letting them hike prices.
Everyone kinda expected to shell out more, because of the looming inflation, so companies were able to slide in bigger price tags under the radar. And this was all for stuff people can't live without, like energy, so they payed up even if it hurts. And it's not really clear to average folks what these companies real cost are, so it's easy to believe the price increase are all legitimate and due to some "real increase in cost".
Market forces amount to "the price is what people are willing to pay." You dump a bunch of paychecks in the bank accounts of every american for 2 years, they're willing to pay more. All these arguments about the price going up due to money printing vs due to price gouging are a red herring. Whenever money is printed, capital gets soaked up by someone. When it's given to banks, they employ economists, so they soak up as much as they can. When it's given to regular people they thank their lucky stars that they can now afford what they're about to run to the store to blow it on, the people selling the things they want profit. Debasing the money always hurts the little guy, no matter whether he's the recipient of the newly minted money or not.
We need effective anti-trust regulation to keep markets competitive. And that hasn't been the case for decades.
A huge % of the goods & services in this world are in the hands of a couple dozen massive conglomerates, after endless consolidation.
This particular narrative seems so believable to me, that a couple companies lead the way jacking up prices in a time of crisis while bandying about shitty airless crap about inflation & costs while profits soared. The very big giants doing this set a precedent & narrative, created a vibe that could perpetuate & extend greedflation. The exact same hype & fury lead us to believe retail theft was astronomically worse: again, now that the chips are falling, we see: this was a boldfaced lie.
Without looking it up, do you know what a monopsony is? If so, why are you claiming any given middleman business is only one of them and not the other? Since they have opposite effects.
I also don't think the monopoly model applies outside industries like energy where there's obvious physical reasons to have one, but there are reasons it helps to grant one to a business in exchange for heavier oversight. It's hard to regulate a lot of small companies.
In general though, "big monopoly corporations" causing everything is a leftover of 70s New Leftism, which was a failure and worse than their prior Marxist analysis.
Not sure if you're being sarcastic, but in case you weren't:
Normally when a business raises costs, regular customers react by blaming the business and taking their business elsewhere.
But when all your customers are reading headlines about inflation, you kind of get a free pass to raise prices on your customers, and direct their ire toward the ambiguous specter of "inflation", regardless of whether or not you actually need to raise prices. When your competitor across the street sees you do this, and sees your customers still patronizing your business, and your profits skyrocketing, they do the same.
Some portion of inflation was real, but a nontrivial part was simple herd mentality by the businesses and using pricing psychology to exploit their customers' irrational decision making.
Due to aggregate supply constraints due to the pandemic there were not enough aggregate goods. Also the pandemic dramatically constrained spending and increased savings, which then rebounded sharply after it was done, creating a tidal wave of aggregate demand. The result was rising prices.
And that is against a background of 10 years of ZIRP and the government threw money at corporations through PPP and blunted the effect of the pandemic recession and we were clearly against the inflection point of the short-term phillips curve.
Market forces should entirely predict all of this.
(And companies are ALWAYS ALWAYS ALWAYS "greedy", the headline line should probably be something like "Millennials wake up one morning and discover how capitalism has worked all along [SHOCKED]").
Any theory that suggests a grand conspiracy involving most of the companies in the country (and world) simultaneously all changing their behavior in an immoral way, in tandem, is a pretty much instant rejection for me.
That article provides no data to show that the conglomerates mentioned “own nearly everything”. It would be quite easy to add up their US revenues and compare that number to US consumer spending, but they didn’t even bother. In addition to the post’s polemical nature, it is crammed full of pop-up autoplay ads.
Plenty of goods with substitutes (ex: fast food items) have increased substantially in price since the pandemic. People are more than willing to pay historically higher prices for plenty of items that could be replaced with cheaper items.
If people are willing to pay these prices, why should companies not be raising their prices?
There has been an enormous increase in net worth of all age brackets in the US in the last few years (as of 2022 data[1]), all data points adjusted for inflation. I think this is enough to explain why consumers are paying for these items.
Feel free to experiment with this graph tool from the US Federal Reserve's website and please respond if you have any other explanations:
A company being part of the supply chain for a lot of goods certainly means something but it doesn't mean they "own everything". They have suppliers of their own, and are themselves suppliers to other companies (grocery stores) before it gets to you.
Which one is the most aligned with your interests is a difficult question, or at least not one I know the answer to, but it's probably not whichever one is the smallest business.
Companies don't consider seeking additional profits to be "immoral." Nor did they change behavior, not radically, at least. Companies saw fear, chaos and a lack of resistance from the buying public regarding pricing, and adjusted accordingly.
Personally I don't consider this "greedflation," but post-pandemic economics exposed that the equilibrium between producers and consumers was vulnerable to a major shift (in favor of the producers), and they took advantage of that.
I would frame it slightly differently: people (and by extension, these companies) have always been greedy, so what is the new variable that actually enabled them to convert this greed into higher prices?
Blackrock and Vanguard's customers (your 401k) own some part of everything. They just manage it.
Blackrock does vote its shares for you most of the time, which can be a big impact, but my understanding is the practical impact of this has mainly been that BlackRock tells companies to care about climate change more and then Republican attorneys general get mad at them for this and write threatening letters about it.
The cycle where CalPERS puts all their money into tech startups and makes Silicon Valley VCs rich is more interesting I think.
The article is not making claims of any conspiracy. The companies can act individually to exploit a situation. Corporate greed. You're missing the context of higher reported inflation being used as an excuse to increase prices beyond what was necessary.
I would say capitalism is a system which innately maximizes for greed. When the money supply expands, greedflation is outright expected - no collusion or conspiracy required.
We're heading into an election cycle - and the incumbent administration desperately needs people to believe the economy is A) Better than it really is and/or B) Evil, Greedy forces are out there thwarting their best efforts.
It's the same sort of misdirection we have in California with gas prices, etc...
Expect a lot more of this type of activist "journalism" in the near future.
Readit News
I think there is this expectation that companies "should" only raise prices necessary to cover their cost increases. But companies charge what the market can bear and, depending on the specific circumstances, this could be equal to, less than, or more than the cost increases.
To use a HN-friendly example, let's say AWS cuts their EC2 costs. If you're providing an undifferentiated computation service using EC2, you'll likely have to cut your costs or you will lose all your business to your competitors. If you're providing a highly differentiated SaaS product, you can probably keep the cost savings to yourself.
You can reason in the opposite direction for price hikes. Depending on the exact company in question, they could be in a privileged position of the supply chain or have marketing power that allows them to increase prices even more.
One main difference here is price stickiness [1], i.e. prices tend to be fixed for a period of time, even if the underlying economics has changed. I think this is underlying reason for perceptions of "greedflation" because, during period of inflation, prices become less sticky and companies use this to adjust prices to better match the underlying economics.
[1] https://en.wikipedia.org/wiki/Nominal_rigidity
This is solid evidence that we do not have a free and competitive marketplace for most goods and services. That is the problem and its gets worse every day.
The economy isn't just some abstract numbers game, there are real people living in it. The expectation that companies shouldn't juice more money out of customers who will suffer (or at the very least have to lower their living standards, which isn't as bad but is still not awesome) because of it is a very justified one.
1. it certainly can be true.
2. but also if other countries print money, it can still cause inflation in your country.
3. and you can't stop them from doing that.
So "don't do it" won't save you. You also need diplomacy and an army.
Also, a better explanation of the theory isn't "money printing" but "higher money velocity" aka MV=PY, which is why it's managed with interest rate hikes.
[0]: https://news.ycombinator.com/item?id=38562946
You've got these big companies that dominate and make it tough for competitors to get a foot in the door.
The pandemic threw supply chains into a tailspin, leaving folks with fewer choices and companies with the goods charging top dollar. Post Covid/Ukraine, these same companies found themselves suddenly holding all the cards, letting them hike prices.
Everyone kinda expected to shell out more, because of the looming inflation, so companies were able to slide in bigger price tags under the radar. And this was all for stuff people can't live without, like energy, so they payed up even if it hurts. And it's not really clear to average folks what these companies real cost are, so it's easy to believe the price increase are all legitimate and due to some "real increase in cost".
A huge % of the goods & services in this world are in the hands of a couple dozen massive conglomerates, after endless consolidation.
This particular narrative seems so believable to me, that a couple companies lead the way jacking up prices in a time of crisis while bandying about shitty airless crap about inflation & costs while profits soared. The very big giants doing this set a precedent & narrative, created a vibe that could perpetuate & extend greedflation. The exact same hype & fury lead us to believe retail theft was astronomically worse: again, now that the chips are falling, we see: this was a boldfaced lie.
I also don't think the monopoly model applies outside industries like energy where there's obvious physical reasons to have one, but there are reasons it helps to grant one to a business in exchange for heavier oversight. It's hard to regulate a lot of small companies.
In general though, "big monopoly corporations" causing everything is a leftover of 70s New Leftism, which was a failure and worse than their prior Marxist analysis.
Normally when a business raises costs, regular customers react by blaming the business and taking their business elsewhere.
But when all your customers are reading headlines about inflation, you kind of get a free pass to raise prices on your customers, and direct their ire toward the ambiguous specter of "inflation", regardless of whether or not you actually need to raise prices. When your competitor across the street sees you do this, and sees your customers still patronizing your business, and your profits skyrocketing, they do the same.
Some portion of inflation was real, but a nontrivial part was simple herd mentality by the businesses and using pricing psychology to exploit their customers' irrational decision making.
> In the long run we're all dead.
And that is against a background of 10 years of ZIRP and the government threw money at corporations through PPP and blunted the effect of the pandemic recession and we were clearly against the inflection point of the short-term phillips curve.
Market forces should entirely predict all of this.
(And companies are ALWAYS ALWAYS ALWAYS "greedy", the headline line should probably be something like "Millennials wake up one morning and discover how capitalism has worked all along [SHOCKED]").
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Dead Comment
If only there were some way for common people to share in the profits. Take a small ownership in the corporations. That would address so many issues!
https://buildremote.co/companies/own-everything/
If people are willing to pay these prices, why should companies not be raising their prices?
There has been an enormous increase in net worth of all age brackets in the US in the last few years (as of 2022 data[1]), all data points adjusted for inflation. I think this is enough to explain why consumers are paying for these items.
Feel free to experiment with this graph tool from the US Federal Reserve's website and please respond if you have any other explanations:
1. https://www.federalreserve.gov/econres/scf/dataviz/scf/chart...
Which one is the most aligned with your interests is a difficult question, or at least not one I know the answer to, but it's probably not whichever one is the smallest business.
Personally I don't consider this "greedflation," but post-pandemic economics exposed that the equilibrium between producers and consumers was vulnerable to a major shift (in favor of the producers), and they took advantage of that.
Blackrock does vote its shares for you most of the time, which can be a big impact, but my understanding is the practical impact of this has mainly been that BlackRock tells companies to care about climate change more and then Republican attorneys general get mad at them for this and write threatening letters about it.
The cycle where CalPERS puts all their money into tech startups and makes Silicon Valley VCs rich is more interesting I think.
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I would say capitalism is a system which innately maximizes for greed. When the money supply expands, greedflation is outright expected - no collusion or conspiracy required.
Deleted Comment
Dead Comment
It's the same sort of misdirection we have in California with gas prices, etc...
Expect a lot more of this type of activist "journalism" in the near future.