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> The continued drop in labor costs Odd way to start the article when later on > Earlier this week, Donavan said the slowing labor cost growth underscored “how little of the current inflation is labor related.” Not arguing with the overall premise, but labor costs are still going up.
This line of argument is utter nonsense and propaganda. Review the history of what happened. Covid landed. Then the federal reserve printed tons of money (shows up clearly in the percentage of government spending as share of US GDP and M2 money supply). Then there was a delay and then inflation began to increase. Inflation is always and everywhere a result of printing.
And the inflation is global. In fact? The U.S. is faring better than most other countries.
And inflation is even worse if you were using a deflationary currency like Bitcoin.
The fact that someone can go through the last few years and see inflation clearly driven by war, inflation clearly driven by supply chain problems due to COVID, inflation clearly driven by Brexit when looking at the UK, and comment “inflation is always and everywhere a result of printing” is just ideological blinkerism at its finest.
Earlier quoted context omitted.
> How can profits drive inflation If every business decides to arbitrarily double their profit margin, then prices will rise, but none of that price rise goes to salaries, nor cost of materials, or anything else but a corporate bank account. This effectively drains money from consumers, without returning anything to them via salaries.
Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, even if your assumption is granted, it would ultimately have no effect on consumers as a whole. So, assuming businesses are more profitable, they ultimately have 2 things they could do with that extra profit: 1. Hoard it and do nothing with it 2. Invest it In the case of 1, doing this is tantamount t…
And it's not like any of the above is some shadowy conspiracy. It's the mainstream practice that is literally taught in business schools worldwide and championed by politicians, most famously by Regan and Thatcher. You're paraphrasing the "trickle down" theory yourself.
"private sector profits as a main driver of inflation" How can profits drive inflation. Profits have no form. They're just an accounting thing, a calculated value: the difference between revenue and costs.
> How can profits drive inflation If every business decides to arbitrarily double their profit margin, then prices will rise, but none of that price rise goes to salaries, nor cost of materials, or anything else but a corporate bank account. This effectively drains money from consumers, without returning anything to them via salaries.
Increasing profit margin requires either increasing price per unit or decreasing cost per unit.
Decreasing cost per unit doesn't affect consumer prices.
Increasing price per unit would send customers to competitors.
Only a monopolist can just 'decide' to double their profit margins.
Earlier quoted context omitted.
> How can profits drive inflation If every business decides to arbitrarily double their profit margin, then prices will rise, but none of that price rise goes to salaries, nor cost of materials, or anything else but a corporate bank account. This effectively drains money from consumers, without returning anything to them via salaries.
Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, even if your assumption is granted, it would ultimately have no effect on consumers as a whole. So, assuming businesses are more profitable, they ultimately have 2 things they could do with that extra profit: 1. Hoard it and do nothing with it 2. Invest it In the case of 1, doing this is tantamount t…
1. It doesn’t have to be collusion. They could even raise margins ahead of expected downturns to prep for savings. There could even be a global pandemic that reduces supply, leading businesses to raise prices in relation to demand and shortages, but those same companies not reducing prices when supply increased.
2. The article actually states that many businesses have recorded record profits recently while costs stayed the same. It’s literally happening in front of us, don’t deny it is a possibility while witnessing it as a reality.
> In the case of 2, investing it, either by starting new businesses or loaning it, means that they are effectively redistributing that money to others in the form of wages.
Why does that have to go to wages? They could distribute it to executives and shareholders as dividends or stock buybacks, or use it to invest into many schemes like private equity that don’t help average people eg. buying twitter and layoff half the employees… which is the opposite of increasing distribution.
Earlier quoted context omitted.
> How can profits drive inflation If every business decides to arbitrarily double their profit margin, then prices will rise, but none of that price rise goes to salaries, nor cost of materials, or anything else but a corporate bank account. This effectively drains money from consumers, without returning anything to them via salaries.
"If every business decides to arbitrarily double their profit margin" Increasing profit margin requires either increasing price per unit or decreasing cost per unit. Decreasing cost per unit doesn't affect consumer prices. Increasing price per unit would send customers to competitors. Only a monopolist can just 'decide' to double their profit margins.
Literally, the article in question stated that price per unit has been rising while costs stayed the same.
> Increasing price per unit would send customers to competitors.
Not if competitors did it too.
> Only a monopolist can just 'decide' to double their profit margins.
No. Or at least we’d have to broaden the definition of monopoly. Eg my local grocery store can raise prices a lot (maybe 25% even) before the cost compels me to drive to a farther-away store, but even then I’d assume the other stores were higher and not bother. Maybe it’s a monopoly in the sense “the only grocery store vineyardmike can walk to” but it’s hardly a monopoly.
Relatedly, California has announced they’re suing big oil companies for all raising prices without seeing a cost increase, and there are national politicians that want to fix the price of oil to cap its profit margins short term in response to the price increases in 2022 (which are unrelated to the cost of producing oil).
Earlier quoted context omitted.
Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, even if your assumption is granted, it would ultimately have no effect on consumers as a whole. So, assuming businesses are more profitable, they ultimately have 2 things they could do with that extra profit: 1. Hoard it and do nothing with it 2. Invest it In the case of 1, doing this is tantamount t…
> Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, 1. It doesn’t have to be collusion. They could even raise margins ahead of expected downturns to prep for savings. There could even be a global pandemic that reduces supply, leading businesses to raise prices in relation to demand and shortages, but those same companies not reducing prices when sup…
It does have to be collusion, otherwise competition to keep prices low
> don’t deny it is a possibility while witnessing it as a reality
I’m not denying that profit margins (of some companies) are higher. I’m claiming that it is not to the detriment of the consumer at large. Also for every company that is seeing increased profits, there’s another one that is seeing a decrease
> Why does it have to go to wages?
It has to go somewhere, right? Even if it goes to “shareholders” or “executives”, or “private equity”, either they are hoarding it (increasing everyone elses purchasing power) or they are investing it (spending it on someone elses wages).
The act of buying Twitter just transfers money from one person to a group of other people (shareholders) who are then free to do what they want with their newfound liquidity. Again, if they hoard that money, then it increases purchasing power for everyone else, and if they invest/save it, then it goes to paying peoples wages
Earlier quoted context omitted.
Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, even if your assumption is granted, it would ultimately have no effect on consumers as a whole. So, assuming businesses are more profitable, they ultimately have 2 things they could do with that extra profit: 1. Hoard it and do nothing with it 2. Invest it In the case of 1, doing this is tantamount t…
All of this is true is a company rises prices without affecting the behavior of others. When suppliers notice their customers raising prices, they raise prices to capture some of that increase. Likewise, workers will try to increase wages. The result is a profit-price spiral that gets misdiagnosed as wage-price spiral.
What keeps this from happening, I think, is the presence of competition which would stop both cohorts, workers and businesses, from increasing their prices indefinitely
Earlier quoted context omitted.
Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, even if your assumption is granted, it would ultimately have no effect on consumers as a whole. So, assuming businesses are more profitable, they ultimately have 2 things they could do with that extra profit: 1. Hoard it and do nothing with it 2. Invest it In the case of 1, doing this is tantamount t…
Don't assume that this would happen overnight. Real wages have been essentially flat for median workers since the early 70s, while CEOs have greatly increased their own real salaries and companies have made a greater focus on short term profits and dividends for their stockholders. The common justification I see for 100:1 CEO to median income gaps is that "CEOs provide value to the shareholders." They do that specifi…
Real wages for workers in what context? The US? The industrialized nations? Perhaps the better explanation for this (assuming it’s true) is that the median worker in industrialized nations has had productivity that has grown at a slower rate than the median worker in developing markets.
Would be interesting to see what the worldwide statistics are for CEO to worker pay.
> They do that specifically by depressing the wages of their employees to make room for dividends.
Can’t “workers” also be shareholders? If not in their own companies, then at least in any publicly traded company. The world isn’t cleanly divided into “worker” and “owner”. People can be both. And again, those dividends have to go somewhere. My original post applies here, where it either gets hoarded or invested, and no matter which one happens, it is beneficial to the consumer at large.
I’d consider “trickle down” to be quite the misnomer. I think “trickle up” is more apt because in the end, all it means is that the people who make the money in the first place, get to decide what they do with it as opposed to being taxed and sending their money off to a centralized (often divided and inefficient) govt to decided what to do with it.
Earlier quoted context omitted.
"If every business decides to arbitrarily double their profit margin" Increasing profit margin requires either increasing price per unit or decreasing cost per unit. Decreasing cost per unit doesn't affect consumer prices. Increasing price per unit would send customers to competitors. Only a monopolist can just 'decide' to double their profit margins.
> Increasing profit margin requires either increasing price per unit or decreasing cost per unit. Literally, the article in question stated that price per unit has been rising while costs stayed the same. > Increasing price per unit would send customers to competitors. Not if competitors did it too. > Only a monopolist can just 'decide' to double their profit margins. No. Or at least we’d have to broaden the definiti…
Now let’s walk through how price increases actually occur. During the pandemic, people started buying out all the toilet paper at their local grocery store. When this happens, what does the grocer do? They put in an even larger order in for more toilet paper than they usually do as they see they are selling out quickly. After all they want to make sure they are stocked up for their customers. Well, all the other grocers around the country and the world are doing the same thing. Unfortunately, the TP co. only has so much supply and production capacity, so they sell to the highest bidder.
Now the grocery stores that were able to procure the TP, had to pay a higher price than usual. Of course they want to make a profit so they will have to increase the prices they charge to customers.
And if people are spending more money on TP, then that means that have less money to spend on something else. So just because one industry sees increased profits, doesn’t mean they all do. In fact, it means other industries see lower profits.
Now apply this dynamic to the oil market/industry.
And California seems to be uniquely an outlier in terms of gas prices compared to the rest of the country. Is it either a.) oil companies are extorting Californians for some reason, or b.) onerous regulations California has put on fossil fuels and oil companies that has cause the price of oil to be so high compared to other states? Again, Occam’s razor