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Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

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Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#71

Post by danaris »

Auracle wrote: post #29
diordiderot wrote: post #26

Earlier quoted context omitted.

> price competition sets in You going to start an airline, a Telco, or meat processing plant because the others are colluding

So, literally everyone is colluding then?

It doesn't require active collusion. This is one of the things that many people fail to understand about this, and many other aspects of our current systems.

When supply chain disruptions during COVID caused significant supply shortages, companies raised prices as one would expect due to the classical law of supply and demand.

By the time those shortages ended, there was so much media buzz about inflation that those companies realized, independently, that they could probably keep prices high and no one would notice.

They did this. It worked. The media still kept talking about inflation. Wages started to recover a little bit from the beating they took during the pandemic, and the Fed started talking about forcing wages down to fight inflation.

Those companies, independently, saw this and broke out in the biggest shit-eating grins ever. They raised prices again, purely to juice their profits, and still the media and Fed were only talking about inflation as if it was caused by wages.

Only now, months/years later (depending on where you start counting), is the media starting to catch up to what's actually been happening.

(And I'm sure that it's also something of an oversimplification—that the inflation hasn't been caused solely by this corporate greed. But I'm pretty damn sure that in this instance, it has been caused primarily by corporate greed.)

TL;DR: Active collusion is not necessary in a situation where multiple actors within the system can independently recognize actions that will benefit them at others' expense, and engage in them simultaneously. It is a zeitgeist, or possibly a bellwether and then flock movement, not conspiracy.

Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#72

Post by prepend »

pydry wrote: post #57
kennethh wrote: post #53

Earlier quoted context omitted.

In mye MBA studies the teacher for accounting had done research on return of equity (ROE) and it showed over time 10+ year for all Norwegian companies it stuck around 9.3% If something become very profitable then many companies should start to target that marked and the profit should be less over time. It is reasonable to think the same thing should happen now.

Unless market consolidation has reached a sufficiently high threshold.

Is there a significant change in market consolidation across all areas in the past 3 years?

Were M&A higher more recently?

It seems odd to me that market consolidation happened in all areas of the CPI and it’s happening at the same time as extremely high money supply is just a coincidence.

Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#73

Post by nisegami »

astrange wrote: post #62
Auracle wrote: post #30

Earlier quoted context omitted.

Housing is (almost) just as bad in rural areas, where there's plenty of land to build new houses. It's just supply and demand.

This is supply and demand: https://twitter.com/stuartbdonovan/status/166414741287168409... Your new land has to be insurable, not in a fire/flood zone, get roads and utilities built out to it, and has to not already have local land-use busybodies zoning it R-1 or inventing brand new weird design requirements.

>Your new land has to be insurable, not in a fire/flood zone, get roads and utilities built out to it, and has to not already have local land-use busybodies zoning it R-1 or inventing brand new weird design requirements.

At the same time, none of these things other than roads/utilities are a requirement in my country and housing is still rising in price much, much faster than anything else + wages.

Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#74

Post by harimau777 »

aeneasmackenzie wrote: post #17
hiddencost wrote: post #8

Earlier quoted context omitted.

You're so close. https://en.m.wikipedia.org/wiki/Capitalist_Realism

> The collapse of the Soviet Union, which Fisher believes represented the only real example of a working non-capitalist system If it was working, why did it collapse? There are lots of alternatives to capitalism but most of them are measured in mountains of skulls. No one has any difficulty imagining more, most people just noticed.

Capitalism has it's own skulls. Violent strike breaking, banana republics, for profit prisons, etc.

Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#75

Post by LatteLazy »

It's really simple: Whenever we run low on labour, we slow the economy with interest rate hikes. So Labour can never get a raise because it never has leverage. But when the other factors of production run low (and their price goes up, specifically land, capital and entrepreneurship) we take no action. The result is that land and capital owners get all the benefits of growth, and labour get's none. This is how we choose for the system to work.

The fact people keep "discovering" this is quite confusing.

Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#76

Post by js8 »

danaris wrote: post #71
Auracle wrote: post #29

Earlier quoted context omitted.

So, literally everyone is colluding then?

It doesn't require active collusion. This is one of the things that many people fail to understand about this, and many other aspects of our current systems. When supply chain disruptions during COVID caused significant supply shortages, companies raised prices as one would expect due to the classical law of supply and demand. By the time those shortages ended, there was so much media buzz about inflation that those…

> It doesn't require active collusion. This is one of the things that many people fail to understand

Exactly. Interested people should look up Keen & Standish critique of the theory of the firm (e.g. http://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf), they have a really nice and simple computer simulation where competing firms collude only on the basis of knowing the current price, without even being aware of each other's existence.

Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#77

Post by js8 »

astrange wrote: post #12
loandbehold wrote: post #2

Karl Marx was right all along.

I believe Marx's thing was "the tendency of the rate of profit to fall", not "the tendency of the rate of profit to rise because of greed".

Isn't "the tendency of the rate of profit to fall" what ultimately prevents new companies to enter the market, causing "the tendency of the rate of profit to rise because of greed" due to price collusion of existing companies?

Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#78

Post by FooBarBizBazz »

SamPatt wrote: post #4

Incredible that there's not even a mention of monetary policy. Are they proposing that corporations suddenly became greedy in 2020? During previous periods of low inflation, did they congratulate those corporations for their altruism in keeping prices low? Money is subject to the same laws of supply and demand as everything else, and when there's more of it, it's less valuable.

In game theory, correlated equilibrium is possible without explicit communication, simply by having access to some signal that (everyone knows is) common knowledge. COVID and interest-rate opportunism by corporations could maybe fall into this bucket without explicit collusion.

Granted, the reality is probably less subtle than all that. When Mark Zuckerberg announces that he's doing stealth layoffs by "raising the bar on performance management", and this is reported in the news, the herd animals in C-suites see and follow. Subtle mechanisms of coordination don't need to be invoked; it's just straightforward mimetic fashion.

Returning to game theory, correlated equilibria can be good -- a way out of Prisoner's Dilemmas -- but in this case I'm afraid it's mostly just the actions of "capital" that are correlated. The Left's communication channels are jammed with pomo chaff, and its members' actions are more independent and uncoordinated.

Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#79

Post by SamPatt »

littlestymaar wrote: post #56
SamPatt wrote: post #4

Incredible that there's not even a mention of monetary policy. Are they proposing that corporations suddenly became greedy in 2020? During previous periods of low inflation, did they congratulate those corporations for their altruism in keeping prices low? Money is subject to the same laws of supply and demand as everything else, and when there's more of it, it's less valuable.

> Money is subject to the same laws of supply and demand as everything else, and when there's more of it, it's less valuable. But somehow, none of the post-subprime-crisis QE had any impact on the price, how surprising… The monetarist take on inflation as a product of money supply died in that period (so much that monetarist proponent invented a new concept of “asset price inflation”). Inflation in general[1] is not…

Astounding that you're claiming monetary policy can lead to hyperinflation, but not inflation. As if those are unrelated concepts.

You are very eager to put nails in coffins and claim that the common sense understanding of inflation (if you print too much money it loses value) is an urban legend.

Re: Profit-Price Spiral: Excess Profits Fuelling Inflation, Not Wages

#80

Post by littlestymaar »

SamPatt wrote: post #79
littlestymaar wrote: post #56

Earlier quoted context omitted.

> Money is subject to the same laws of supply and demand as everything else, and when there's more of it, it's less valuable. But somehow, none of the post-subprime-crisis QE had any impact on the price, how surprising… The monetarist take on inflation as a product of money supply died in that period (so much that monetarist proponent invented a new concept of “asset price inflation”). Inflation in general[1] is not…

Astounding that you're claiming monetary policy can lead to hyperinflation, but not inflation. As if those are unrelated concepts. You are very eager to put nails in coffins and claim that the common sense understanding of inflation (if you print too much money it loses value) is an urban legend.

> As if those are unrelated concepts.

They are. A slow/moderate increase in prices (even 20% a year) has nothing in common with “the salary you've received on the first of the month has lost most of its value by the end of the month”, the social and economic causes and consequences of these two events are completely different.

> that the common sense understanding of inflation

It's only “common sense” because Milton Friedman convinced a generation of people of it, but it goes pretty much against all empirical evidence (including in recent time). The sun and stars don't orbit around a fixed earth either, btw…

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