In the past 15 years we engaged in unprecedented fiscal and monetary stimulus, which saw US Govt debt triple to $30T and the Fed balance sheet increasing 8 fold to $9T. But yeah, I'm sure it's corporate profits.
And yet despite 15 years of stimulus we have had persistently low inflation for all except the last 2 years or so, the first half of which was very clearly driven by supply chain issues. It’s almost like even if stimulus has had an impact it’s not the only, or even the primary driver.
Why is inflation so sticky? It could be corporate profits
41–50 of 324 posts
Re: Why is inflation so sticky? It could be corporate profits
#42Earlier quoted context omitted.
Thats not really accurate. The rest of the curriculum is about how that is still correct but how people attempt to gain market power so they can stop others undercutting them, bringing market back to efficiency.
There's this strange thing that is done. We have economics departments and business schools and they aren't the same thing. Mainstream neoclassical economics is mostly preoccupied with what ought to happen in some mathematically defined fantasy world and business school is the study of what actually does happen. In fact when you get into post-graduate classical economics, it's mostly just a formal branch of mathemati…
Take auto insurance... probably the biggest TV advertiser in the US. Highly regulated product, nothing tangible, it's all the same. But the gecko and Flo and Jake from State Farm are there every commercial break to pound your head in to differentiate their product from alternatives. Doesn't hurt that price discovery is painful in this industry, they know it is unlikely you'll compare more than 2, mayyyyybe 3, companies.
Meanwhile there's essentially zero marketing for health insurance in USA, because people have no choices, the employer chooses for you.
Re: Why is inflation so sticky? It could be corporate profits
#43Re: Why is inflation so sticky? It could be corporate profits
#44It's a likely theory. But economics teaches us when a player overcharges, others will step in to undercut and take all the market share. So, we're at a point where we need to admit that mantra isn't true in the modern age, or admit that we've done a terrible job at preventing effective monopolies/duopolies from forming.
That is what the first two weeks of economics teaches. The rest of the curriculum is about how wrong that is.
Macro at all levels is Keynesian theory plus increasing levels of math. IMO, much of macro resembled alchemy.
Several upper-level classes, though by no means all, took the assumptions in earlier classes, tore them down, and then re-built economics from there. These are assumptions like preferences being transitive, perfect information, rational self-interest, etc. Many of the claims of econ are defensible even when the assumptions are not. Game theory, for instance, is a very solid defense of economics (albeit one I don't agree with). Institutional econ, political econ & public choice are another family of approaches. Some approached like behavioral economics attempt to "debunk" old theories, though these have had problems with things like replication.
Also, econometrics is quite widespread now. Undergrads typically must take at least one semester of it, and OLS regression is essential for understanding certain papers in most upper-level classes. Econometric models are empirical and have only a tenuous relationship with the mainstream theoretical models like supply & demand, AD-AS, ISLM, or the various growth models.
It's not too dissimilar from physics (economists are infamous for physics envy), where Newtonian physics is wrong but still worth learning.
Re: Why is inflation so sticky? It could be corporate profits
#45Earlier quoted context omitted.
The problem is that people aren't rational, and they don't have perfect information. So the history of finance and commerce has been a cat-and-mouse game where the cats find new ways to cheat people, and the mice try to recognize and prevent those schemes. One example: cartels. If an industry is dominated by a small number of large players, they can collude to set prices and stifle competition through regulatory capt…
I didn’t take tooooo many econ classes but it sure seems like there are a lot of monopolies, oligopolies, and potential cartels these days.
Re: Why is inflation so sticky? It could be corporate profits
#46Isn’t this reversing cause and effect? Corporations are able to raise prices because consumers are willing to pay higher prices. Corporations always want to make as much profit as they can. If consumers can pay more, you get inflation.
Re: Why is inflation so sticky? It could be corporate profits
#47Earlier quoted context omitted.
Thats not really accurate. The rest of the curriculum is about how that is still correct but how people attempt to gain market power so they can stop others undercutting them, bringing market back to efficiency.
There's this strange thing that is done. We have economics departments and business schools and they aren't the same thing. Mainstream neoclassical economics is mostly preoccupied with what ought to happen in some mathematically defined fantasy world and business school is the study of what actually does happen. In fact when you get into post-graduate classical economics, it's mostly just a formal branch of mathemati…
People generally miss fundamentals and don't account for a moving store of value, they often assume its constant. Economics is marginally only used to sell something often with deceit in mind on someones part.
As for what's driving inflation, its obvious its the fact that government is spending more than they have each year, printing the difference, and have now gone gangbusters with manufacturing spending to offset china imports.
They are also printing money to buy back bonds to control yield curve in lockstep with other central bank currencies (you see these fluctuations in the relative value of the currency).
The corruption, fraud, and graft that this money is funneling to have become so large that its inflating the dollar as its not necessarily creating economic activity. Rising interest rates have stressed the already overleveraged companies to the point they are shutting down or massively laying off.
Some producers base their prices off a business as usual approach. Others project profit sufficient to normalize against changes in the currency price level and any additional expenses/shortfalls in supply chain problems during the short term. While prices may be inflexible for some things, that's only if there's no shortage and the product is available.
Also, you have distributors refusing to do business with smaller companies (as has been seen with a couple of the small time farmers). They want shortages, so they can have an excuse to charge more. Classic characteristic of stagflation and lack of antitrust.
All of this can only get up to a point before food becomes relatively unavailable, and then everything hits the fan.
Re: Why is inflation so sticky? It could be corporate profits
#48Earlier quoted context omitted.
>"government spending" does not cause companies who are making record profits to increase their prices. That's just greed. It absolutely does. If people have "extra" money (e.g. COVID payments), they can bid higher on limited resources (i.e. inflation). If there's more employed (i.e. government jobs), that's again, more people with more money, for limited resources (i.e. inflation). While I'm sure companies are takin…
So, between three years and two years ago I got a pre tax total of $2200 (some states had them as taxable income). How is that amount still causing inflation? You say "While I'm sure companies are taking advantage of the fact" - that's a present continuous tense... I used the past tense for when I last got a stimulus check. So why present continuous? Why not say "while I'm sure companies took advantage of the fact?"…
I can't tell if this is a disingenuous question. Your $2200 is a very, very small amount of the total pie. Have a look at how the money supply changed during the pandemic. At the very start of the pandemic, when money was being printed there were experts saying "we will see inflation in the next 2 years", that's what we're seeing now.
Here's a Deloitte paper published in 2020 (see page 9: https://www2.deloitte.com/content/dam/insights/us/articles/6...)
>According to Friedman’s view, the United States will experience very significant inflation in 2022
Re: Why is inflation so sticky? It could be corporate profits
#49Earlier quoted context omitted.
You're right in that (some) people don't have "extra" money. Most people can't print themselves money. However, some people do have "extra" money, particularly people who have access to the money printer, or who are bailed out by the people with the money printer. Guess who buys most of the government debt, allowing the government to overspend? The Fed. Government spending isn't in a vacuum either. Every dollar the g…
I can't argue that government spending isn't a problem. It really is. In particular it's where the money is going, how it's being accounted for, and how much benefit the average American sees from that which is way out of whack. The pandemic had the government printing a ton of money and handing it out to some very rich people, but does giving more money to a person who already had enough money to afford whatever the…
Re: Why is inflation so sticky? It could be corporate profits
#50It's a likely theory. But economics teaches us when a player overcharges, others will step in to undercut and take all the market share. So, we're at a point where we need to admit that mantra isn't true in the modern age, or admit that we've done a terrible job at preventing effective monopolies/duopolies from forming.
If this were true, wouldn’t all corporate profits be next to zero as companies compete on the slimmest possible margins?