I see a lot of ultra-dismissive comments like yours whenever this is posted, but it seems to me like putting "believes there are microchips in vaccines" and "believes corporations will try to raise prices when they think they can get away with it" in the same league is a conversational gambit so daring that I have to wonder what your motives are.
This has just as much explanatory power: They're able to charge higher prices because individuals are saving less than ever, believe that rising costs are due to inflation and not corporate greed, and don't perceive it as price gouging but rather as a consequence of the current situation in 2023, including the global pandemic and the war in Ukraine. Additionally, we're witnessing an unparalleled level of consolidation across various industries, significantly reducing competition compared to previous years.
We're not on target for deflation; American consumers love spending money and are currently doing it as hard as they can. We seem to, amazingly, be hitting the soft landing.
Some other countries are doing poorly at the moment, but that's always true.
If you want to see the money supply shrink more, I'm told a good way is better tax enforcement.
Counterpoint: during COVID, supply costs of all types -- labor, transportation, raw materials -- were far less predictable than ever before. Therefore, a "risk premium" was embedded into prices.
You're the CEO -- for the past 5 years, costs rose steadily 2-4% annually, and you raised prices 3% each year. Now Covid hits, everything is in chaos, you expect costs to rise somewhere between 5 and 15%. Of course, there is also the possibility that you won't be able to access one specific ingredient at all, or that one element will spike in price. Now -- as CEO, how much do you raise prices? Just the average between 5 and 15, or do you err on the side of safety and raise prices 15%, or even more?
a) what profit is "necessary"? a business's goal is to maximize profit.
b) risk premiums exist in every form of economics. it's why, typically, stocks return more than bonds over time, for example. Why would regulators be interested in auditing companies for acting rationally?
Necessary to cover increased costs and manage actual risk. Where there is a lack of competition or opportunity for collusion companies can and do exploit the situation rationally. Just because it is rational doesn't make it legal or ethical.
Why is this so difficult for you to understand? This is not complicated.
I am not dismissing the concept of a risk premium. I am saying they can exploit the concept of a risk premium to justify an excessive increase in prices, beyond what is reasonable. Companies can collude to set higher prices and blame inflation.
Antitrust laws and regulations exist for a reason. Companies have been cheating since the beginning of the history of companies.
> I am not dismissing the concept of a risk premium
You wrote:
disguised as a "risk premium"
Saying something is just a disguise for something else and, for additional emphasis, putting air quotes around it is an unmistakable dismissal of the concept. Hard to imagine how you could have been more clear.
Cool it with implying bad motives. It's against HN guidelines.
Of course corporations will try to raise prices when they think they can get away with it. The question is, why did they think they could get away with it? Or, put the other way, why didn't they think they could get away with it before?
I assert that what prevented them before was competition - if you raise your price, and the other vendor doesn't, you lose business. Well, what happened? Did that mechanism just take a holiday? Did competitors disappear? Or what? Why did companies think they could get away with it now, when they didn't think that before?
That's where all these "greed" explanations fall short. Of course companies are greedy. They were greedy five years ago, too. Why weren't they raising prices then?
The way I heard it, energy prices rose, some companies increased prices in anticipation of much higher costs, everyone followed suit, fearing the increased costs, and the prices all surged.
Don't fixate on the term 'greedflation,' as it's based on the widely accepted notion of corporate greed. The primary counterargument to greedflation is that companies have always been greedy; it's not a new phenomenon. The concept of greed is entrenched in capitalist economies. However, the theory is that demand should naturally regulate this greed—if a company becomes excessively greedy, they risk losing customers who may opt to spend less, save more, or patronize other businesses. Thus, there's an assumption that the system self-regulates, allowing only as much greed as the market can bear.
Microchips are actually a more defensible belief. I can deduce that inflation isn't caused by greed with an extremely basic knowledge of economics. Meanwhile, while it seems a priori extremely unlikely that Bill Gates has been spiking our vaccine supply, in order to actually disprove it, I'd need a microscope and some time.
> By your logic any price hike is to be accepted and not questioned because "basic economics"...
No it doesn't. But by your logic, surge pricing is theft.
I have no particular faith in people. I observe that there's all kinds of irrational, nonsense beliefs scorned by mainstream economists that are popular among certain groups. "Greedflation" is dumb economic populism, nothing else.
I feel like you're an LLM having a fit of hallucinations.
Like I said, in any social mileu there are insane things that are commonly believed. Providing evidence that people believe in "greedflation" doesn't contradict that at all.
You didn't read the article. Greedflation is a theory that some companies exploited inflation to create excessive profits, not that greed was the sole cause of inflation.
I mean if it helps them pretend that helicopter money can't possibly have any negative second order effects then they'll believe whatever you tell them.
> Inflation is a hardship, a short one in this instance
Excess inflation represents permanent hardship. Inflation is a growth rate -- if it is 2% every year, then spikes suddenly to 8% for a year, and goes right back to 2%, that excess 6% is permanently embedded in prices in all future years. (very simplified example, but the concept is valid)
No. Rising wages are often the cause of high inflation, but wages do not increase as a result of high inflation. The harm from high inflation can be measured as increases in alternative (non-earning) methods of accessing money -- low savings rates, high credit card balances (and delinquencies), high levels of borrowing from 401k's (or low contribution rates), tapping into home equity -- which is exactly what we are witnessing now, not coincidentally, right after the biggest inflation spike in decades.
I won't pretend to be an expert on the matter, but I'm not very convinced by your argument.
> [...] wages do not increase as a result of high inflation
Not in the short term, sure. But if the cause of the inflation isn't something permanent, labour is still (somewhat) subject to the same market equilibrium (in real terms) as it was before the inflation. There are some major caveats here (e.g. wage stickiness), but we're talking long-term.
> which is exactly what we are witnessing now
I don't disagree, but again this isn't long-term. I assume you wouldn't expect these effects to last for the rest of eternity (assuming inflation returned to 2% and stayed there)?
I'm not sure what market equilibrium you're referring to. If things always balanced out in the long-term, our economic situation would resemble the 1950's or 60's, where a single-income household could comfortably afford a suburban house and raise kids. Instead, we have people living under their parents' roof until 30 or longer, enormous college debt loads, majority of families relying on two incomes (and often, one or both parents moonlighting at a second job), housing costs taking a larger slice of total incomes than ever before, married couples refraining from having kids as an economic decision, more people than ever relying on some form of government subsidy. None of these factors would be growing if some long-term equilibrium existed, because at some point, we'd be reverting to the mean. Instead, society's lifestyles have slowly shifted in response to the fact that, over the long-term, producers have become increasingly effective at extracting a larger and larger share of consumers' incomes, and ultimately, realized and potential wealth.
But surely you'd agree that most of those things are ultimately caused by external factors, not just some sort of long-term build up from inflation over the years?
> society's lifestyles have slowly shifted in response to the fact that, over the long-term, producers have become increasingly effective at extracting a larger and larger share of consumers' incomes, and ultimately, realized and potential wealth.
It sounds like we basically agree (even if I'd describe it a bit differently)?
Edit: I guess what I'm trying to get at is that there are lots of different things that can cause inflation, and not all of them follow your example of "that excess 6% is permanently embedded in prices in all future years" in real terms.
by "producers", I am not referring to wage-earning employees, but (primarily) corporations and business owners.
> there are lots of different things that can cause inflation
yes, true. but you've offered no support for your original claim that "wages catch up," or that the negative effects of brief periods of excess inflation are not long-lasting.
Yes, that's how I interpreted it - no disagreement here.
> "wages catch up,"
I probably should have clarified my wording a bit. I think it's clear that _total_ nominal earnings will increase [1] (because where else will the extra 6% of revenue go?), so the only question is how well distributed those earnings will be. In the short term, perhaps pretty poorly. In the long term, maybe a bit better - but that's a much more complicated subject and beyond what my original comment was trying to imply.
I didn't intend to imply that there are _no_ lasting effects from excess inflation, though I can see how it'd come across that way.
[1] again, assuming the inflation was caused by increased demand, not a supply shock.
Even if wages did catch up, retired folks are permanently disadvantaged. There’s a reason why the Fed targets a low inflation rate by default than letting it float freely.
Agreed, but my comment was more specifically about inflation being "permanently embedded in prices".
Also, retirees with savings don't tend to have all of it in cash (I hope?), but even if they do, the higher cash rate will slightly offset some of those effects.
