Analysis finds Australia’s inflation being driven by company profits, not wages • Hacker News Board

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#161

Post by Khaine » Sat, Feb 25, 2023, 6:19 AM UTC

gruez wrote: post #127

stephen_g wrote: post #120

Earlier quoted context omitted.

In Australia businesses like supermarkets, banks, the largest airline etc. have just announced huge profits in their latest reports. I think the report definitely could have been better written, because a lot of the inflation is more due to passing on external cost increases, or domestic businesses raising their prices to account for inflation, and all keeping the same margins, hence resulting in larger profits in no…

> In Australia businesses like supermarkets, banks, the largest airline etc. have just announced huge profits in their latest reports. As someone who isn't from Australia, can you provide some actual figures, preferably with historical comparison? Without specifics "record profits" doesn't mean much. The most banal interpretation is that profits in nominal dollars went up, which is totally expected given that the eco…

You can see Woolworth's (one of our supermarket chains) 5 half-years worth of results here https://www.woolworthsgroup.com.au/au/en/investors/our-perfo...

H23 H22 H21 H20 H19

911 798 1175 1024 1003

As you can see the 'record profit' is just coming off a low base.

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#162

Post by rcme » Sat, Feb 25, 2023, 6:21 AM UTC

naasking wrote: post #147

rcme wrote: post #142

Earlier quoted context omitted.

That doesn’t really make sense. Raising prices not supported by demand would result in less profit in theory. For instance, prices may go up in a supply disruption, but the loss in sales means suppliers earn less. So if prices were artificially high, it would actually be more profitable to lower them.

They wouldn't lose sales on necessary staples like eggs, milk and such, all of which have seen significant increases.

Demand for milk and eggs is definitely elastic. And we're seeing inflation in other goods that aren't staples as well.

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#163

Post by rcme » Sat, Feb 25, 2023, 6:27 AM UTC

ThreeBeanPizza wrote: post #139

rcme wrote: post #122

Earlier quoted context omitted.

> Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. What does this even mean? How can buyers be willing to pay more than the market price and the sellers still make more money? If such a case were to occur, it wouldn't be correct to call the old price the "theoretical market price." Basically, what you're describing is literally inflation: the purchasing p…

The answer to the question of paying above market price is market power. When firms have market power beyond perfect competition they adjust prices above the theoretical competitive level where marginal cost = price. A change in supply generally, ie shrinking, gives firms more market power to charge higher prices => inflation. Intrest rates really don't touch market power so it is pretty fair to criticize interest ra…

> Intrest rate hikes also slow down business investment which makes supply less responsive.

That's kind of a simplification. Interest rates affect business investment. But many kinds of business investments are just "business" for other companies. E.g. when TSMC invests in building a new chip fab, they buy EUV systems from ASML. ASML uses that money to pay their suppliers and employees, etc. Also, interest rates affect real estate prices, which affects real estate development, which is a big source of employment. Government debt is also more expensive, so high interest rates also apply downward pressure on government spending.

I agree that there's too much market consolidation, and that isn't impacted much by interest rates.

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#164

Post by neilwilson » Sat, Feb 25, 2023, 6:27 AM UTC

zmmmmm wrote: post #21

It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the food chain has taken advantage of supply shortage to eke out additional margin along the way. And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. The actual situation is that even if competi…

"When inflation is actually driven by consumers having too much money, fine, go for it."

Except that interest rates don't really affect that either [0]

Inflation is always, everywhere, a lack of competition problem.

Firms will charge what they can for their output. Inflation is causes by people paying that price because there isn't another alternative in the market, and 'no deal' isn't an option.

[0]: https://new-wayland.com/blog/interest-price-spiral/

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#165

Post by js8 » Sat, Feb 25, 2023, 6:29 AM UTC

Aunche wrote: post #115

zmmmmm wrote: post #21

It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the food chain has taken advantage of supply shortage to eke out additional margin along the way. And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. The actual situation is that even if competi…

>Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation There are only 3 ways to decrease inflation: - Interest rates - Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overa…

Not true, you can also (selectively) increase taxes to take out excessive money supply.

In the case of profit-driven inflation, you could tax excess profits.

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#166

Post by neilwilson » Sat, Feb 25, 2023, 6:32 AM UTC

phkahler wrote: post #70

abigail95 wrote: post #54

Earlier quoted context omitted.

If you're going to say there's a gap in theory, could you at least explain which economic theory is showing the opposite result here?

Show me an economist that uses the word hysteresis. Their models are quite primitive IMHO and not because they're powerful like the ones used in thermodynamics, but they act like they are.

https://www.newcastle.edu.au/profile/bill-mitchell

"We have known about the concept and relevance of hysteresis since the 1980s. In terms of the academic work, I was one of the earliest contributors to the hysteresis literature in the world. I published several articles on the topic in the 1980s that came out of my PhD research as I was searching for solutions to the dominant view in the profession that the Phillips curve constraint prevented full employment from being sustained "

http://bilbo.economicoutlook.net/blog/?m=20200629

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#167

Post by Aunche » Sat, Feb 25, 2023, 6:37 AM UTC

naasking wrote: post #151

Aunche wrote: post #115

Earlier quoted context omitted.

>Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation There are only 3 ways to decrease inflation: - Interest rates - Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overa…

> Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overall inflation much, if at all. The necessity of rationing assumes that demand is outstripping supply. That's not the case when corporations are price gouging. Egg farms are not se…

> Again, egg farmers are not going to suddenly just kill all of their chickens and switch to building datacenters because we only implemented price controls on necessities like food. Nixon's price controls went fine, as but one example.

Funny you say that...

> Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.

https://www.pbs.org/wgbh/commandingheights/shared/minitextlo...

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#168

Post by SamPatt » Sat, Feb 25, 2023, 6:37 AM UTC

neilwilson wrote: post #164

zmmmmm wrote: post #21

It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the food chain has taken advantage of supply shortage to eke out additional margin along the way. And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. The actual situation is that even if competi…

"When inflation is actually driven by consumers having too much money, fine, go for it." Except that interest rates don't really affect that either [0] Inflation is always, everywhere, a lack of competition problem. Firms will charge what they can for their output. Inflation is causes by people paying that price because there isn't another alternative in the market, and 'no deal' isn't an option. [0]: https://new-way…

What is this nonsense?

Inflation is always due to a lack of competition? Where on earth is the evidence for such an assertion (I didn't see anything in the linked article)?

Inflation is a monetary phenomenon, it's not a mystery at all. Governments print too much money and then it's worth less. History is full of examples.

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#169

Post by neilwilson » Sat, Feb 25, 2023, 6:39 AM UTC

abigail95 wrote: post #54

zmmmmm wrote: post #21

It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the food chain has taken advantage of supply shortage to eke out additional margin along the way. And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. The actual situation is that even if competi…

If you're going to say there's a gap in theory, could you at least explain which economic theory is showing the opposite result here?

Post Keynesian theory and endogenous money show how it works.

Firms don't charge a 'market price'. They put a mark up on costs and sell as much as they can at that price.

In other words marginal productivity theory is nonsense.

When you do that, and you get a supply crunch as we have now, then prices will go up as we are seeing.

It's fairly obvious. I will try to sell my stuff for the highest price I can get for it. Your only choice as a buyer is to go somewhere else, or refuse to buy.

Prices are controlled by excess capacity to supply. When that capacity vanishes, particularly amongst needed goods and services, you get price gouging.

It's similar to overstretching a spring. We have damaged the supply side and it won't go back to its prior path.

Re: Analysis finds Australia’s inflation being driven by company profits, not wages

#170

Post by brnt » Sat, Feb 25, 2023, 6:39 AM UTC

zmmmmm wrote: post #21

It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the food chain has taken advantage of supply shortage to eke out additional margin along the way. And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. The actual situation is that even if competi…

What makes economics a weak science, weaker than many other humanities, is the habitual absence of experimental evidence. It's of course hard to have a number of double blind histories of the world economy, yet that is what it takes to be a hard science. If you accept that it never can be (many economists try hard to pretend otherwise!), then you have to accept (again, many don't) that building mathematical models for human behavior (without rigorous validation) is no more scientific then some of the worst stereotypes people have for the social sciences. Yet, economics _is_ a social science, through and through. It studies human behavior. Just because currency lets you quantify and calculate more easily than other kinds of behavior, does not make it fundamentally different.