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

theguardian.com

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

#221

Post by imtringued »

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…

I wish central banks followed MMT and instead of interest rates they introduced the concept of minimum annual redemption. If the central bank wants to lower inflation without raising the interest rate it instead increases the minimum redemption rate. What this means is that your loan has to shrink by x% annually. The interest payments you would be paying instead are used to pay back the loan/destroy money faster. Interest doesn't destroy money, it circulates through the economy once so it is neutral on inflation. Higher interest rates mean higher monthly payments which means less demand for loans but the minimum redemption rate does the same thing but also destroys money faster so it eliminates inflation faster.

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

#222

Post by ssss11 »

Khaine wrote: post #150
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…

so lets look at this closely: Banks - banks make more money when rates are higher, as they can get a bigger spread between what they offer savers and borrows. CBA, Australia's largest bank has a net interest margin of 2.1%. This means that the difference between the cost of interest paid to savers, and that borrows pay is 2.1%. This 2.1% covers all of the expenses and profit the bank makes. Banks make obscene amounts…

Well it isn’t wages fuelling the inflation. Wages aren’t rising but our mortgage repayments certainly are!

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

#223

Post by sethaurus »

uonpopular_th wrote: post #195
brnt wrote: post #170

Earlier quoted context omitted.

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 fo…

I used to agree until I saw what has happened to biology in the last few years. Economics is a science as good as any other. It's just that a lot of people with a lot of money want it to say something so it does. No science is insulated from its practitioners being bought out and the few with principles being silenced.

> I used to agree until I saw what has happened to biology in the last few years.

I'm missing the context here — could you expand on what's happened to biology?

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

#224

Post by imtringued »

brnt wrote: post #170
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 fo…

>the habitual absence of experimental evidence.

You can run economic experiments. That isn't the problem. The bigger problem is the unstated assumption of a perfectly liquid economy even in the absence of money and the fact that the mathematical models are supposed to drive reality and not the other way around. Homo sapiens is supposed to mimic homo economics.

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

#225

Post by uonpopular_th »

sethaurus wrote: post #223
uonpopular_th wrote: post #195

Earlier quoted context omitted.

I used to agree until I saw what has happened to biology in the last few years. Economics is a science as good as any other. It's just that a lot of people with a lot of money want it to say something so it does. No science is insulated from its practitioners being bought out and the few with principles being silenced.

> I used to agree until I saw what has happened to biology in the last few years. I'm missing the context here — could you expand on what's happened to biology?

The bureaucrats who should have been enabling and coordinating scientists instead decided what the policy should be for Covid19 and ruined the lives/careers of anyone who did not fall in line.

The worst of these decisions by far was the policy that covid was spread by aerosols and not airborne: https://www.nature.com/articles/d41586-022-00925-7

This was nothing short of Lysenkoism in the 21st century.

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

#226

Post by imtringued »

lordnacho wrote: post #213
brnt wrote: post #170

Earlier quoted context omitted.

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 fo…

We do get observational evidence, the only problem is it tells us the opposite of what we thought, eg minimum wage evidence contradicts what theory would say. Somehow this doesn't seem to matter though, we still teach the theory.

It is actually very easy to build a theory that disproves the idea of minimumg wage affecting employment.

If we assume the economy is already in perfect equilibrium then raising the minimum wage will cause inflation but the wages will adjust upwards with the same coefficient vs the minimum wage.

Another factor is that if you give money to people who haven't met their basic needs yet is that they will spend their money faster which means it circulates faster which will generate another employment opportunity. This is effectively a scheduling problem akin to starvation in process/thread scheduling in the kernel. If you ignore a specific thread too much then it can block other threads and result in underutilization of resources.

The latter tells you that you shouldn't prioritize the needs of the wealthy so that "wealth trickles down".

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

#227

Post by jvmfjvfjvf »

imtringued wrote: post #226
lordnacho wrote: post #213

Earlier quoted context omitted.

We do get observational evidence, the only problem is it tells us the opposite of what we thought, eg minimum wage evidence contradicts what theory would say. Somehow this doesn't seem to matter though, we still teach the theory.

It is actually very easy to build a theory that disproves the idea of minimumg wage affecting employment. If we assume the economy is already in perfect equilibrium then raising the minimum wage will cause inflation but the wages will adjust upwards with the same coefficient vs the minimum wage. Another factor is that if you give money to people who haven't met their basic needs yet is that they will spend their mone…

A $50 minimum wage wouldn't affect unemployment? Why not make it $100?

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

#228

Post by imtringued »

stephen_g wrote: post #125
jpgvm wrote: post #27

Earlier quoted context omitted.

Similarly lowering interest rates into the ground when consumers still had plenty of money but supply was constrained probably wasn't a wise move either. More targeted assistance of just affected industries during the pandemic could have prevented almost all of this.

True, that was a big part of the problem. This is one of these “Doesn’t anybody see this? I feel like I’m taking crazy pills here” moments - dropping the interest rates didn’t do why we wanted (just pumps up property and equity prices with cheap money but doesn’t actually stimulate the economy), even some countries set them negative which didn’t work either, and raising interest rates has never been really shown to r…

The problem with monetary policy is that there is no way to actually decrease the money supply, other than repaying debt. If there was literally any other mechanism to get rid of excess money, then you could, for example, do helicopter money when there is a recession and do the inverse of helicopter money when there is a boom and never even touch the interest rate.

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

#229

Post by jvmfjvfjvf »

brnt wrote: post #170
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 fo…

Do you make the same claim about climate science?

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

#230

Post by imtringued »

refurb wrote: post #190
hgomersall wrote: post #176

Earlier quoted context omitted.

Except that the evidence shows that money supply increase doesn't necessarily lead to inflation. Countries that go through hyperinflation always have a systematic underlying problem that they use money creation to try to fix. "Ah ha!" declare the monetarists, "evidence for our assertion that money supply is the cause of inflation", conveniently ignoring all the counter examples. The point of the GP post is that compe…

Thats a terrible article. The example of oranges going up in price and apples down is not inflation. Inflation is an overall erosion of buying power. When oil prices rise that’s not inflation, although prices might rise.

But we don't have neat measurements that differentiate between supply side and demand side inflation.

Honestly the 70s inflation and the 20s inflation were both caused by the same thing, supply side price shocks in oil prices.

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