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Corporate profits account for almost half the increase in Europe’s inflation

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Re: Corporate profits account for almost half the increase in Europe’s inflation

#151

Post by the_gastropod »

horsawlarway wrote: post #100
the_gastropod wrote: post #45

Earlier quoted context omitted.

As a rule of thumb, it's safe to assume anyone who complains generically about "money printing" doesn't actually have a rational point. They're generally hand-waving broadly, suggesting some John Birch Society type of inflation conspiracy.

I know right - it's certainly not like that Paul Volcker fella has any fucking clue what he's talking about. --- To quote the man himself, when referring to how he was going to solve inflation: "But none of these policies, important as they are, can substitute for commitments to fiscal prudence and restraint on the money supply."

This isn't to suggest money supply has no impact on inflation—of course it does. There's a reason Powell increased interest rates, after all. But the simplistic "MONEY PRINTER GO BRRR INFLATION LUL" meme can generally be chalked up to belief in conspiracy-theory nonsense.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#152

Post by coliveira »

nr378 wrote: post #87

Businesses are always greedy. The fact corporate profits are up is an effect of inflation, not a cause. A good essay on the topic is: https://www.economicforces.xyz/p/greedflation-lets-try-this-...

You have to choose: they're either greedy or they cannot do anything about prices. If they are not driving prices to increase profits, then you can't say they're greedy. They're just doing whatever they can in a situation they don't have any control (they should also be fired and replaced by someone who can improve pricing).

Re: Corporate profits account for almost half the increase in Europe’s inflation

#153

Post by evancox100 »

taude wrote: post #116
evancox100 wrote: post #103

Earlier quoted context omitted.

What government is arguing that employee wages should be lower/stagnant in order to fight inflation? EDIT: I mean advocating not just that we should avoid a wage/price spiral through other means, but specifically that individual workers should accept/volunteer for lower wages than they could otherwise get? Edit 2: seeing several cases of "$Reserve_Bank_Person says wage increases are too high and need to come down", n…

Probably referring to news like this? https://www.nytimes.com/2023/04/28/business/wage-inflation-m...

Can't read the full article but the headline seems to say that the fed is hoping for wage increases to slow, but that would be because they have tightened monetary policy. That's different from the fed chair getting up and saying "Workers, please ask your boss to pay you less so we can fight inflation."

Note that the main transmission mechanism of monetary policy in fighting inflation is basically putting people out of work, to the extent of provoking a recession if need be. So yes the fed is looking for some pain in the labor market to see that things are working, though they would love for inflation to come down without a recession too.

But high inflation is also bad for workers, because wages in general don't keep up in real terms (re-negotiated infrequently, leverage imbalance between company and worker, status quo bias, etc.). The higher inflation is the larger you can expect companies profit shares to be (case in point, the original article). Also really high inflation seems bad in general for the economy, both workers and companies.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#154

Post by eldritch_4ier »

alexaholic wrote: post #19

I find it hilarious when companies are following their stated goal of making profits, while everybody else is rushing to explaining rising prices by factoring in everything but profits.

Of course inflation is "just" businesses increasing their prices, how else would prices increase - they are decided by humans after all. It's STILL the fault of loose monetary policy. Do you understand that?

Many people mention corporate profits drive inflation like that's the end of the conversation. It's the equivalent of saying your house got flooded because the door broke open (allowing the raging hurricane outside to get in). It's pointing at a barely relevant proximal cause to ignore the real issue (the raging hurricane).

The economy is a system of individual actors. Everyone is constantly trying to raise their price (employees and employers included). When you do the equivalent of doubling the money supply in under a year, combined with covid supply chain issues, you create an environment where actors in the economy are able to dramatically increase their prices - often out of necessity because their competitors and suppliers are doing the same. The consequence is inflation. This happens if and only if you dump massive amounts of money into the economy above and beyond what can be absorbed by the rate of production.

In a sense, both are technically true: inflation is because Biden among other world leaders flooded the economy with money, and the economy aka the system of individual actors reacted to this and found they were able to raise prices because the economy could sustain that. The difference is that one of these is a massive unforced error with easily foreseen consequences that caused significant suffering, and the other is human nature (wrapped up in a prisoner's dilemma).

The blame is still rightfully entirely on people like Biden who greenlit this objectively terrible policy.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#155

Post by coliveira »

dantheman wrote: post #85
coliveira wrote: post #76

Earlier quoted context omitted.

Competition doesn't work correctly in modern economies because companies are allowed to buy their competitors. If you start competing with another company, they can essentially raise money to buy you and stop what would be the "normal" process. As a result, all theories that people have about how competition works don't apply as they think it should.

That can only go on for so long; if people see companies buying out competitors people will jump to create more and more competitors for the easy exit.

Will they? Only if they can. Tech industries are example #1 for this behavior. At some point very few people can create a competitor for Amazon, Google, or Apple.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#156

Post by poomer »

kibwen wrote: post #92

Remember: profits are a direct measure of the inefficiency of a given market. In a functioning market, the existence of profits either drives businesses to reduce their own profits by competing on price (problem: cartels) or else drives new businesses to emerge in order to seize some of those profits (problem: barriers to entry). To have record-breaking profits means that are markets are record-breakingly inefficient…

The paper does not claim that firms have increased profit margins: "the limited available data does not point to a widespread increase in markups"

https://www.imf.org/en/Publications/WP/Issues/2023/06/23/Eur...

Re: Corporate profits account for almost half the increase in Europe’s inflation

#157

Post by alexaholic »

jldugger wrote: post #72
alexaholic wrote: post #19

I find it hilarious when companies are following their stated goal of making profits, while everybody else is rushing to explaining rising prices by factoring in everything but profits.

Well, you have to come up with a reason for why now -- the profit motive has been there forever. There's also a question of why high margins don't induce new entrants to these markets, or why consumers responding too cleanly to higher prices by buying less. There's been a variety of factors at play and I think if you want to pin it on profits you gotta put in the legwork to rule out or at least quantify the dozens of…

https://news.ycombinator.com/item?id=36484267

> I suspect what happened was rising prices because of the pandemic and the war showed companies they can increase prices without also suffering a significant decrease in sales. After all, when virtually all prices are going up, where are consumers going to go?

Re: Corporate profits account for almost half the increase in Europe’s inflation

#158

Post by coliveira »

nine_k wrote: post #119
coliveira wrote: post #76

Earlier quoted context omitted.

Competition doesn't work correctly in modern economies because companies are allowed to buy their competitors. If you start competing with another company, they can essentially raise money to buy you and stop what would be the "normal" process. As a result, all theories that people have about how competition works don't apply as they think it should.

This works when the competitor goes public and thus can be bought in a hostile way. Buying out and closing a completely private company is harder (though not impossible, given a right price).

This is rarely difficult when the buying company is large enough. You just need to offer a good multiplier for the current price of the private company. Very few private companies will turn down a generous offer, especially when the option is to compete directly with the larger company.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#159

Post by screye »

nostromo wrote: post #52

Inflation is caused by monetary policy. Did profits increase? Potentially, yes. But they couldn't have increased without the enabling condition of massive money printing. Companies were trying to maximize profits before 2020. That hasn't changed. What changed was the monetary policy.

Yeah. Just like you can't guilt consumers in buying a Prius, you can't guilt companies into seeking something other than profit.

Companies and humans operate on incentives. The one to blame is the ones who control those incentives.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#160

Post by jerf »

nostromo wrote: post #52

Inflation is caused by monetary policy. Did profits increase? Potentially, yes. But they couldn't have increased without the enabling condition of massive money printing. Companies were trying to maximize profits before 2020. That hasn't changed. What changed was the monetary policy.

If, for the sake of argument, the government printed 100x the currency that currently existed, in short order, corporate profits would skyrocket as that money was deployed and the market as a whole into which that currency was being deployed realized what the situation was.

Those corporate profits wouldn't be causing the inflation.

They would potentially be the place where they are first noticeable and measurable according to certain measurements, but in a complex system that you do not have instrumented up completely, the first place you see a particular thing appear is not necessarily its origin point. Anyone debugging distributed systems should have direct experience with that.

This is not what is happening, but I kind of this kind of boundary analysis where you stick large numbers in to a system like a helpful way to feel out the landscape of a problem like this.

I'm open to the idea that this or that corporate action is making things better or worse. But "inflation is bad because corporations discovered greed in 2020" is such an obvious falsehood that it calls into question why anyone is even pushing it as a reason. Greed was invented somewhere around the time the first cell divided into a second cell, not several years ago.

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