I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change.
In an inflationary period, consumers expectations change allowing more movement in this price than normal. And this permits companies to increase prices, and produce higher profits. Note, their upstream providers are doing the same, and some of these higher profits will be passed on upstream.
Companies that are in a weaker market position, will find themselves unable to raise prices as much as their competitors.. and if their upstream providers find demand enables them to raise prices more than they can, they will find their profits decrease. Some of these companies will go out of business. This is one of the ways that inflation rids the market of less desirable companies.
Cost-plus pricing (how many consumers imagine pricing works) has almost entirely gone away in retail pricing. Even if a producer does this, the retailers will market adjust the price themselves... This is what has happened to car sales: the manufacturer didnt capture the difference, so the dealership captured it instead.
> Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts.
Meanwhile, my government mandates that ALL employees automatically get a raise matching inflation. No negotiation possible/needed; employers cannot refuse. Belgium.
Sounds great in theory; in practice Belgium competitiveness index and innovation index is lower than all its neighbouring countries; including France and post Brexit UK.
Broadly speaking, competitiveness is the source of quality of life improvements, through its effect of expanding capital and thereby raising productivity.
If economic productivity is proportional to quality of life, why aren't most people doing everything they possibly can to maximize their productivity. E.g., working 20 hour days, foregoing children in order to produce more, trading vacation days for more work...
I'd argue it's because economic productivity is not the only input into well-being and quality of life.
Lack of recreation and reproduction harms economic productivity in the long run. Everything valuable or good in life can ultimately be measured as contributing to productivity.
That assumes is a goal in its own sake. I’m making an argument that productivity is a means to an end, not an end itself. It’s similar to the alignment problem of AI.
Put differently, do you think a lower quality of life is a worthwhile tradeoff if it raises productivity? What about the inverse?
Some laws, like those against theft and violence, increase competitiveness. The ideal state has such laws - that establish a free market based on voluntary interaction - and little else. And indeed, states that get closest to this ideal have the best economic growth rates and trends in QoL improvements.
If fact, if you want competitiveness you need to prevent a fully free market.
No matter how many times this is explained, people still continue to make this incredibly simple and enormously consequential mistake.
If we're taking the reductionist view that economic output is the only important measure of society, then people need to understand that means maximizing competition not maximizing a free market.
> And indeed, states that get closest to this ideal have the best economic growth rates and trends in QoL improvements.
Isn't this just a cleverly worded tautology? It's like saying healthy people tend to live longer and happier lives. But is it actionable information? Not really.
Again, I don't see the tautology in my statement, and I know I'm asking for elaboration in good faith, so there's no way I could see it from your perspective.
In what world does competition increase quality of life? Competition results in more misery and less free time as people spend their time and energy trying to out compete one another.
You are conflating lack of regulations with lawlessness. If literal anarchy was the alternative, then you'd have a point.
Anyways, the device in question would simply not have existed if there wasn't for competition. His comment is thus evidence of its content being false.
>>Plenty of nation that are not lawless but are effectively unregulated in the matters being discussed.
I think you have basic misunderstandings of economic concepts and the state of the world economy. Can you provide an example of poorly performing economies which "are not lawless but are effectively unregulated in the matters being discussed"?
You're moving the goalposts, while launching a torrent of insults without provocation.
You wrote:
>>>>How are the citizens in the least regulated doing on that front?
Now you're noting that some countries don't have specific workplace condition mandates. Not having said law doesn't mean they meet the ideals noted, of having laws establishing a free market, while lacking regulations that restrict voluntary exchange. To elaborate: in order to prove classical economists' and libertarians' claims about the free market being optimal are wrong, you'd have to show far more than these cherry-picked examples.
Your argument is sloppy, and when I request for more vigor, you lash out to create a flame war. This is not intellectual or scientific.
I'm absolutely justified in demanding you support your claims with evidence, and your belligerent responses are not justified, no matter how morally superior you believe yourself to be.
Now you're being disingenuous, framing an answer to your explicit query as anything other than that.
You said "Can you provide an example of poorly performing economies which "are not lawless but are effectively unregulated in the matters being discussed"?" And that's what I was replying to.
I provided an entire class of people who are harmed in such nations, of which too many exist.
Just because they don't share your preferences doesn't change the fact they meet the criteria you set forth.
> Meanwhile, my government mandates that ALL employees automatically get a raise matching inflation
How does this work in practice? It is your wage is reviewed annually and adjusted, or more frequently? Do employers give raises for good performance or do you expect to just get a raise based on inflation?
Every Jan 1st the government produces an "inflation index" and all gross salaries are multiplied by that number. Employers are free to give more; but if your January gross salaries is lower than your dec salary * the index you have a legal case.
Employers typically take this into account and reduce the performance based raise they give by the amount. It's great for the low performer or easily replaceable people who get a raise they otherwise would not have gotten and bad for the top performer / more sought after profiles because employer look at the total costs and thus have less legroom for individual increases. It acts as an equaliser in that sense; but the best and brightest are getting way more few kilometres away (it's not like Belgium is a huge country; almost every lives less than 1.5 hour away from the border).
For the companies that are less able to pay that automatic inflation; it can be pretty hard/expensive to fire, because the employment laws are quite protective. So the usual solution is to just not hire. Big companies are also finding ways to reduce their headcount and transfer the risk on smaller structure; such as using sub companies and franchising models. Thos inherently reduce employee job security and stability. Unions are fighting this as much as they can; without any success.
Companies that need local workforce (retail, ...) adjust their prices accordingly. As an example the same pack of pasta costs ~40% more in Belgium than in France. Many people take their car and drive significant distances to cross the border buy food.
Governments have a cynical knack of identifying every possible cause of inflation, no matter how tenuous, except the obvious one - government policy.
Governments will blame businesses, consumers, employees, foreigners and bad weather. The only option ruled out is all the money printing going on and a good decade of regulators encouraging that and high-risk financial behaviour.
If inflation is high, it is a bad time to listen to governments.
If anyone is still claiming the main or only reason for inflation is "money printing", they really haven't being paying attention to the world for the past 3 years and it's a terrible idea to listen to them.
Why are you ignoring a pandemic with associated measures such as lockdowns (although funnily, Sweden is very useful - they didn't lock down, they didn't print a ton of money, yet they're experiencing similar inflation to their neighbours), war in continental Europe, and the impact those had on global markets (higher costs of critical raw materials such as oil and gas, various metals, disrupted supply chains and bottlenecks, etc.)? Do you really think none of this matters, or do your political leanings tell you it's always the government's fault?
All those issues will be resolved and the effects will disappear in time. The war will end. Supply chains will realign. And if those things matter, then at that point we would expect prices to come down. You'd have to be naive to believe prices will come down. They aren't going to. This is not the first crisis in the last century and yet inflation is almost uniformly positive year after year. Governments are explicit in their policy-making.
Those things don't matter when identifying why prices tend to go up over time.
He labelled the cause as government policy, which clearly includes pandemic measures.
Sweden didn't lock down but they did print a ton of money. Compare money supply growth for UK vs Sweden. It's the same and occurred at the same time. Lockdowns weren't the only pandemic spending measures unfortunately. All governments everywhere massively pumped the money supply to pay for "whatever it takes" and now the bill has come due:
> Do you really think none of this matters, or do your political leanings tell you it's always the government's fault?
Inflation is always and everywhere a monetary phenomenon, however, this basic insight is easy to get confused about because there's a large gap between theory and practice when it comes to this metric.
In theory inflation cannot occur without money printing, because a rise in prices of something like oil or food must be compensated by a fall in prices elsewhere as demand for that less essential thing disappears. People re-allocate their financial decisions towards the thing increasing in prices, businesses compensate by lowering prices to try and increase demand, it balances out.
Several things complicate this simple picture in practice.
One is that government inflation metrics don't include all prices. Indeed they cannot because it's too difficult to collect that data and prices constantly change. Also, governments like to play games with inflation statistics because if you can confuse people about inflation you get to pay for election pledges with money printing and then blame inflation on external factors, and because people tend to vote for whoever promises to spend more without raising taxes it's a quick way to hack democracy. So they usually define inflation only in terms of a small subset of all prices. If you do that then you can obviously have inflation even in the absence of money printing because you're ignoring the prices that fall.
Another problem is that in a sufficiently damaging period of price instability, some goods and services may simply cease being available. Everyone is spending all their money on heating their homes and other businesses go bankrupt as a consequence. At this point the price of the thing effectively goes to infinity, it just can't be obtained at any price, but that ruins the calculations and so governments do substitutions within the basket of prices, asserting that X is a substitute for Y even if in reality X is quite different (e.g. different kinds of meat). There are lots of hacks like these in how the stats are calculated.
Yet another problem is that money printing is somewhat circular in a fractional reserve system with very low reserve ratios and there are lots of feedback loops. If the government prints lots of money, then gives it to people whilst simultaneously banning the spending of it then it will appear they printed lots of money without causing inflation. When they stop banning the spending of it, that will show up as inflation even if the money printing has stopped. This is what's happening now, as governments shovelled money into people's pockets during lockdowns but there was nothing open to spend it on.
Nonetheless, we usually think of inflation has being caused by money printing because most of the time prices aren't being affected by wars or oil cartels and when that does occur, the prices which rise are being compensated by other prices that are falling or disappearing (which is a loss of wealth). It may just not be obvious.
> In theory inflation cannot occur without money printing, because a rise in prices of something like oil or food must be compensated by a fall in prices elsewhere as demand for that less essential thing disappears.
This is silly, inflation existed before "money printing" existed as a concept. We had inflation when we had gold standard. Inflation existed even when we used physical gold coins to pay.
More plainly, the most important factor in the economy is velocity of money and you completely ignore that it exists. Higher velocity of money can allow inflation to rise, with a fixed supply.
1. Debasement of the currency (reducing the gold content of coins)
2. Gold mining
3. Stealing gold from abroad
That's why the Spanish Empire suffered hyperinflation after Cortez, because so much gold was brought back to Spain from the conquered South American tribes.
Yes, money velocity has an impact too but the main thing which can affect that is government intervention (like by printing lots of money and giving it to people who then save it - low velocity - and later start spending it - higher velocity).
Agreed, it is silly to say inflation "only" occurs due to money printing. I'd like to point out though that gold is printed. More precisely it is mined.
If governments sell bonds to domestic buyers then indeed that doesn't create money, but in practice most bonds are bought by the central bank using printed money.
What do the funds used to buy bonds do until repaid?
They back the newly printed currency.
You see, nothing is ever actually created.
Money is created from Commodities like wheat, corn, and metals, all of which are obtained in manners where the input cost is less than the output value with the additional value coming from a process in nature (sun and photosynthesis, or geologic actions for example).
You've clearly never actually done the flow chart, huh?
You're talking about wealth, not money. Wealth indeed cannot be created out of thin air and is based on converting inputs into higher value outputs. Money in contrast can be created at will, and is, all the time.
Aren't you talking about bond issuance? Yes, no money is printed then. It's printed when the central bank buys the bond back from the open market using new money.
>How are bonds repaid?
They aren't, the central bank indefinitely rolls them over.
No, bonds held by the federal reserve are rolled over. The debt is paid back but it is immediately replaced with new debt of equivalent value, off of the open market. The process is described here: https://www.newyorkfed.org/markets/treasury-rollover-faq
>On the auction settlement date, the maturing Treasury securities are exchanged for the newly issued Treasury securities.
In net, the debt is only paid back when the central bank is actively reducing its treasury holdings, by rolling over less than the total amount of maturing debt. That is basically the reverse process of 'printing money', it takes the money back out of the wider economy.
>Why do you think people buy them?
Certainly 'people' buy them because they intend to get paid back, yes, but the central bank doesn't have the same motives. It increases and decreases the amount of treasuries it holds in order to control the money supply. That's the whole purpose of it holding treasuries.
The level of disingenuous is absurd at this point.
Do investors get paid in exchange for returning the bonds?
Yes.
The fact that the government repeats the process is irrelevant to the simple fact that the Cash printed is done so by first securing an equal amount of funds to back them which is then returned with interest to the bond holder, inherently meaning that the Cash is not printed out of nothing but rather printed explicitly to represent real world value.
The amount of wealth in circulation and the amount of cash in circulation are not equal.
Wealth is constantly changing as new commodities and services are produced which create new wealth "out of nothing". You're engaged ina complete misattribution of cause and effect
At this point it seems intentionally deceptive...
Poe's law is in effect and I will begin treating you as a troll until proven otherwise.
Governments can argue whatever they want, workers still demand more pay and (more often) change jobs to where they get paid more. The last years has been massive for worker movements, atleast here in my region.
It's difficult in Europe. Most companies aren't paying more, I've been interviewing for 3 months, so there's nowhere to go to for more money. If they can collectively jack up prices to bump the inflation, they can also collectively put a ceiling on wages.
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", not a lot of "Please turn down your pay increase so we can fight inflation." The reason no one would actually say the second is it is a ridiculous collective action problem that is obviously unsolvable on the employee side. The Australia governor warned against a 5.75% pay raise for govt employees (I think), but he was addressing the employer in that case, not individual workers.
The UK government has done this various times in the last couple of years to argue against (high) pay rises for the National Health Service and other government institutions.
So the one exception that I considered putting in would be cases where the government is the employer and is negotiating with their employees. And yes of course, they will use whatever arguments they can to come out ahead in labor negotiations, like any employer.
I didn't see any mention of calls for workers to accept lower wages in the first article. In the second article, such calls were mentioned but not explicitly referenced or quoted. (Maybe they would be familiar to a British audience.)
But I would say that is different than asking for private sector workers to accept lower wages as an inflation fighting strategy. And note that the actual fiscal policy that the UK has pursued is wage subsidies, as much as 650£ - 1000£ annually it seems. (As described in the second article, not something I'm familiar with beyond that.)
UK govt spokespeople have regularly argued that employers and employees, both public and private, should limit wage rises or accept lower rises to avoid inflation. It’s mad, but that’s actually what they say.
Ironically, they are most vehement when claiming wage rises in the public sector cause inflation, despite ethe evidence there being much weaker (or non existent according to many economists).
What he should be calling for is for private sector leaders to show restraint when raising prices. But he doesn't. That just tells you whose side he is on.
Sure but that's an appeal to the employer setting the wages, not the worker. (Or is he talking about executive pay for themselves? I couldn't read the article.)
Ok, you are pushing your definitions into unreasonable territory.
A central bank saying inflation is caused by high wages is exactly the same as the government telling people they should get a lower wage. There is no practical difference.
It is in fact worse, because the central bank tends to act on that phrase. So the government not only tells people they should earn less, but forces their hands into that.
Right, but the central bank knows that IT is the one forcing the lower wages. They're not standing up there asking employees to shred part of their paycheck, because that is obviously dumb. The original person was talking about what workers should do "out of the goodness of their own heart." But no central bank is asking workers to take action, they are forcing workers' hands, explicitly.
You may think that is better or worse, but it is not appealing directly to workers to throw away their pay check.
The U.S. Federal Reserve hasn’t advocated people voluntarily take a lower wage, but they have explicitly stated that their goal for raising rates is to put people out of work so that they’re forced to accept lower wages. You can see Powell’s FOMC transcripts from late last year for many examples of this.
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.
"no, they're not expecting people to just take less money because wages are sticky and that wouldn't happen anyway, they're just trying to put everyone out of work so you have to renegotiate at your next job"
ok so you agree with the general thesis but not the exact mechanism? why quibble then?
In before someone argues that RBA isn’t part of the Australian capital-G Government, the organisation certainly is part of the governing institutions of Australia.
Now, of course, he's not saying to any particular workers "Hey, stop asking for much higher wages," but he says plainly in the final paragraph of the article:
> “The labor market … shows only tentative signs of rebalancing, and wage growth remains well above levels that would be consistent with 2 percent inflation over time,” he said. “Despite some promising developments, we have a long way to go in restoring price stability.”
How would you suppose workers are supposed to have wage growth "consistent with 2 percent inflation" if said wage growth were to greatly exceed that magical 2% number? This is the Fed literally saying "Please turn down your pay increase so we can fight inflation," except that there's also the implicit thread of "... or else we're gonna have to make sure a bunch of you lose your jobs so it all balances out. It'd be a shame if that happened, wouldn't it?"
One point is that they “argue” through their policies. It seems like there is much more government tolerance for “stimulating” the economy when it most benefits corporations (lower rates and/or bailouts) than it does when it disproportionately goes straight to citizens (stimulus checks)
Governments argue both, that’s what this article shows. They can shout from the hilltops to “stop asking for more everyone!”, but it’s not going to help without actual action to force it.
This may be the case, however somehow it seems it is usually wages which stagnate while profits skyrocket.
Either the government is unable or unwilling to enforce this equally. If unable, they are incompetent, if unwilling, than they are corrupt. In either case we live in a corporatocracy not democracy.
As they should. that's how it works and they are correct. Employees should argue against that and demand more if they dare.
The job of Central bank is to increase interest rates until unemployment rate increases to the level where employees don't dare ask more. Unemployment reduces both demand and wage growth. That will slow down inflation but it also baits recession.
They didn't say government. They said Central Banks, which in most places are semi-disconnected from elected government since you don't really want anyone playing politics with Central Bank policy.
Central Banks are generally tasked with setting one single, but very powerful, variable: interest rates. There's thought to be a pretty strong causal relationship between interest rates and unemployment.
The central bank absolutely knows that jacking up interest rates will, in the short term, drive down living standards. The trade-off is that it will also drive down inflation, which causes much bigger drops in living standards in the long term.
In practice central bankers are unelected politicians. Their mandates are set by politicians, they aren't actually bankers in the normal sense of the term, and what they do is attempt to plan the economy in service of politically set goals. If central bankers were really independent of politics then they would of course have refused to print any money to fund COVID measures like lockdowns on the grounds that they are responsible solely for inflation and employment, so if governments wanted to do that they'd have to pass emergency taxes. Obviously no central banker said that. They were all immediately on board with letting politicians do whatever they wanted.
I didn't intend for it to be read as either good or bad. Actually I think it's a good thing. Government employees should not see themselves as independent of politicians.
I think the OP was referring to how governments tend to be conciliatory to actors just responding to market forces in one side of the debate and not the other. Jon Stewart had a good interview with Larry Summers on this (although I realize he’s no longer in the government). Stewart’s point was that the govt/central bank tends to make excuses for letting corporations benefit from “market forces” but do more to actively thwart workers for using those same forces to their own benefit.
> job of Central bank is to increase interest rates until unemployment rate increases
This is incorrect. The job of the Fed is to maximise price stability (which it defines as 2% inflation) and minimise unemployment (which it defines as the natural unemployment rate, to which we are close). There has basically never been a time when the Fed wanted unemployment to go up. (Keep in mind: unemployment != wage increases, though the two are related as are prices.)
The BoE has been banging the wage restraint drum for a while. Bailey on the Today Program in February:
“I’m not saying nobody gets a pay rise, don’t get me wrong. But what I am saying is, we do need to see restraint in pay bargaining, otherwise it will get out of control.”
Back in May, his Chief Economist Huw Pill got in trouble for expressing the sentiment thusly:
“Somehow in the UK, someone needs to accept that they're worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing energy costs through on to customers,” which Bailey had to walk back.
Last week on Sky News, he was pitching a version of that same position, though, that balanced calls for wage restraint with calls for companies to exercises restraint on profit margins also:
“We've got to get and we will get inflation back to its target. To do that … we cannot continue to have the current level of wage increases, and we can't have companies seeking to rebuild profit margins which mean prices continue to go up at their current rates.”
This is probably the closest example, and he is toeing the line there on a direct appeal to workers. But it also seems like broad expectation setting to both workers and employers that high inflation will not continue, so you don't need to price that in. It is a bluff on his part, but one that (in theory) works out if everyone believes it.
>… when he suggested workers shouldn’t ask for big wage increases…
How is that not directly telling workers to not ask for wage increases? I’d also say adding the word “chastising” is changing the tone of what the original commentor and I were referencing when talking about governments asking workers to not ask for wage increases.
The author is doing a lot of heavy lifting with the word "suggesting". I can't find any quote that suggests he is actually saying workers shouldn't ask for raises. Here's the closest I could find:
"To do that I have to be clear – and we expect inflation to come down this year – to do that we cannot continue to have the current level of wage increases ... And we can't have companies seeking to rebuild profit margins which mean prices continue to go up at their current rates...But what I would say to people is we expect inflation to come down, and it is important then that price setting and wage setting reflects that."
Again, nothing "suggests" that he thinks workers are supposed to be blamed for wage increases being unsustainable. If anything he is blaming corporations!
Is wage setting not an activity taken on by the labor force? I can see how a reasonable person might interpret it that way, but I also see how it’s interpreted as a message to labor. Otherwise you might be suggesting that capital has all the negotiating power and there isn’t any market for labor and that sounds rather communistic which I’m sure these fellows wouldn’t ever imply
Worker wages have been stagnant for a decade plus. Even the recent increases have been vastly outpaced by increases in prices AS EVIDENCED BY INCREASING PROFIT at companies that are increasing wages.
The problem is there is no price competition because most sectors of the economy are oligopolistic and have no interest in competing with each other one price at the moment.
Yes and the first step to solving the problem is acknowledging it.
In order to change some thing you have to prove that it’s happening.
In the case of “What underlying structure creates society’s problems,” increasingly more research is pointing to inequality itself and lack of democratic participation/ownership in the economy. These are the foundational factors driving poverty and precarious economic conditions for an increasing proportion of the population.
The Lions share of corporate profits go to existing shareholders and only rarely employees, and even rarer do employees compose the majority of shareholders (you have no shareholder power as a FAANG employee different than any other retail investor - namely, none)
So no it’s not irrelevant. It’s very relevant if people want to actually have power in determining how the organizations they join are operated.
The answer is competition. Most of markets nowadays are dominated by 2-5 big players with the CEOs going to the same golf club. Wink-wink, nudge-nudge, prices go up, nobody can do nothing.
If we had 50 competing players, there would be enough incentive for a hungry challenger to lower prices and undercut the competition. Except, over a decade of leveraged acquisitions and antitrust regulators being asleep at the wheel killed the most remote chances of this happening in our lifetime.
The problem with competition is, what happens after someone wins it? This is essentially what has happened in many markets; lots of small companies have been killed by or conglomerated into giant ones that rule the market. Sometimes antitrust regulation can't even help with this; what if there are no acquisitions, just one company doing stuff better killing all competition?
Eventually, the company gets too big and cocky, does a massive mistake and goes out of business/downscales. Like, you know, bad investments of 2008.
The economy must go in growth/bust cycles, where growth brings out new ideas, and bust cleans up the inefficiency. And keeping it decentralized keeps busts manageable.
But if you instead let everyone merge during good times, and then bail them out during bad times, the next good times will never happen - the incentives are all wrong!
Then when they jack up prices, it creates an incentive for new companies to enter that field and make the same item for less.
A better question might be: what hinders this process today? Capital disparity plays a role (a wealthy company can perhaps make a competitor a buyout offer they can't refuse, or temporarily lower prices to try to kill them), but another major cause is excess regulation and the weaponization of intellectual property.
What hinders the process is that the people holding the capital are the same ones that benefit from the new competition.
So they sell the stock of the company that is wringing out excess profits just as they are putting money into the “disruptor” that is going to capture all the consumers leaving company #1.
Now ensure that you push for a decade of overleveraged growth and regulatory capture (ensuring you don’t get diluted the same as the founders) and now you have shares of an entrenched quasi-monopoly - your task again now is to demand margin increases and stock buybacks in order to exit your position and buy your name on the local college library.
Wash rinse repeat all while taking money/risk off the table personally each round so when it collapses finally and the companies are finally ground into dust, you and your family have long exited and are onto the next thing.
I don't think you answered the question. Your story depends on competition Rising and companies falling. It doesn't explain why markets are winner take all or why competition is slow to rise.
For example, if Amazon has a monopoly, why haven't capitalist profiteers bled it dry yet,
If a company can win a market, that begs the question why. Are there regulatory barriers preventing competition? Can competitors not compete on price?
The answer is the former then we should remove governmental barriers to competition. If competitors can't theoretically undercut the price, then it's hard to see how more competition would favor the buyers. Surely they're not better off with 10 competitors at Double the price.
Last, there is the issue of time. Competition doesn't happen overnight
> If a company can win a market, that begs the question why. Are there regulatory barriers preventing competition? Can competitors not compete on price?
A reason why a new competitor might not be able to compete on price is because of capital disparity. The winner can lower prices, buyout the competitor or if that fails they can always turn to buying out distributors/suppliers/key employees of their competitor
That claim is very specific to how you define market.
Most markets have never had more than 3-5 major competitors in them because beyond that it gets too hard for customers to differentiate between them, too hard to understand all the available brands etc.
But this depends on a lot on where you draw the boundaries of the market. There probably aren't more than 5 good Chinese restaurants within walking distance of where you live even in a city, for example. But over the whole city there are many more. There are only ~4 main cloud providers globally, but if you expand your definition of the market a bit further there are many more.
In practice for price competition to exist you don't seem to need more than 3-5 players. For example Oracle offer a generous free tier in the cloud space.
The even deeper underlying structure for all of the world's problems is ... Human Overpopulation. Inequality increases with population due to fewer resources available per person. Democracy withers with the ever-growing population because more consumers, constituents, tax payers, soldiers, etc give more power to politicians, overpaid CEOs, etc. Name nearly any global issue and human overpopulation is at least a likely and usually primary factor.
The problem here, especially if the prices are rising higher than wages is, that sooner or later the basic necessities (food, shelter, ...) reach a level, where people can barely pay them, and all the other industries suffer, because consumers don't have any leftover money for luxuries, gadgets, etc.
Some prices (mostly services) can be adjusted, some could be (rents, housing, mostly by rezoning and building more), but due to "reasons" (mostly local and national governments holding back) they aren't (until someone compares the average pension to average rent and instead buys a sniper gun and finds the responsible politician). Some prices are also stuck due to politicians doing their dick-measuring competitions ending in sanctions for countries that have stuff other countries need, and industries shutting down because that stuff became too expensive there.
On the other hand, we did print A LOT of money in the last few years, and blaming everyone else except (also) the ones who have the power to print is just stupid.
It is probably not possible for people to carry on buying luxuries, gadgets etc at the same levels as before without others being forced to do without the basic necessaties. Remember, this all started out with an energy crisis: there was not really enough to supply all the factories in China running flat out as people caught up with their consumption along with everything else, and then Russia throttled back their exports and made things worse. That shortage of energy directly caused prices to increase until demand could actually be satisified, which directly made things like food more expensive. You couldn't just fix this by forcing the companies to charge less, even though the money is ending up as profits, because energy and fuel just isn't available in sufficient quantities without Russia.
There's also a shortage of workers in most developed countries too, which means that any labour used to provide luxuries directly impacts the amount available to produce the basic necessaties like housing and healthcare as well.
Just because firms don't prefer to think about pricing in terms of cost-plus doesn't mean that their actual costs are "irrelevant". If people feel that a company is pricing their goods unfairly, shouldn't they move their spending elsewhere? If companies with healthy and growing margins fire people with memos citing challenging economic headwinds, shouldn't people call BS? If companies raising their prices dramatically for the same goods, and perhaps for products which were developed decades ago and simultaneously lobby against regulations which they say risk stifling "innovation", shouldn't people tell their representatives exactly why those corporations are not credible?
The idea that discussing widening margins is "irrelevant" because companies adjust prices based on consumers' price sensitivity seems exactly backwards to me: the fact that profits are so high indicates that consumers have been overly-credulous and ought to be more price sensitive. And zooming out, the accelerated transfer of wealth from consumers to shareholders happens because we consumers collectively allow it. Reporting which highlights the rising profits relative to other factors can be part of what enables a course-correction.
You can only be price sensitive when you have a real choice. And I'm talking oligopoly here, impossible to shake in just two years since covid hit with the extra pressure.
I don't disagree with anything here but it feels like it tiptoes around saying what's actually happening, which is that there isn't an effective competitive market anymore.
You say that prices go up because they can, and that's not wrong, but historically there were other providers also competing. It feels like there has been massive consolidation across industries, and that this centralization has created uncompetitive markets, where consumers don't have any option but to accept a providers price & profit increase.
That feels like the new thing, the new trouble: only the very large are left. Competition does not renew: even if there are fat profit margins waiting to be had, the risk of trying to start a new competitor is too high, too likely to get crushed, has too many personal risks (trying to provide healthcare for your family, not go bankrupt, etc).
The markets have ossified into a state where this ruin you speak is possible.
Car sales in the US is not a useable example for any microeconomics discussion, let alone (notionally) generalized principles. Car dealers are one of a handful of infustries with an explicit exemption from federal antitrust law prohibiting price fixing and collusive monopolies. So, they made those, decades ago. And abuse them constantly.
The way you can tell this is true is price any car or truck in the US for sale from dealer X. Then attempt to shop around for a better price from set of dealers Y-Z. You will find that within a convenient-to-you radius the same regional dealership operating co owns all of the dealerships for your preferred make/model.
Then if you expand your search radius you will find that opco is owed by a larger holdco, which "oversees" supply and demand so your price. Not a free market. And not the manufacturers' doing, or their input suppliers, or inflation. It's a gov policy choice as abused by nearly a century of lobbying which some might call bribes.
As I recall the other US industries with explicit antitrust exemptions are Major League Baseball... and domestic shipbuilding vis-a-vis domestic maritime commerce. This is famously why the Love Boat *had* to go to Mexico, because it was (presumably) foreign flagged and couldn't move between US poets without calling at a foreign port.
If we accept this and are told the right thing to do is to spend less - then all that’s happening is the victim is being blamed and the burden of regulation is put on those most at risk.
It’s like companies shifting the burden of their plastic waste onto consumers by telling them to recycle rather than providing a better, less polluting product.
Going to add a slightly devil's advocate view here.
I used to be the conference directory for a college club sport (specifically, paintball).
Part of my job was to find paintball fields to host college events. It's important at to say that the organization that funded these events was 501(c)(3) aka "non-profit" and we therefore were trying to minimize costs.
Something we ran into was this scenario:
- Fields knew we were college focused and a non-profit
- They would generally, out of the goodness of their hearts, charge us at cost or even below cost for our events
- This would sometimes mean turning away hosting events or players with better margin. You could argue that the fields received great free advertising by hosting events so it wasn't a net loss for them.
- That being said, we sometimes saw events coming back the next year saying "it wasn't worth it to host your event"
- This was a problem given that there were only limited fields AND I had a full time job at the time so, ideally, we would use the same field every year
- I would therefore add 10% to whatever cost the fields proposed to us as a "tip"/"return fee" to make sure they were happy
Now, you could argue that my job was to make sure that we always received the lowest possible price given our constraints on field safety, size and location.
I would argue that was ignoring the long term cost to the organization (and my time) to having to keep finding fields that would host us if we tried to minimize cost.
I mention this b/c companies maxing out profit to whatever the customer can bear feels like an excellent short term strategy. If by doing so, they drive customers into debt and then bankruptcy etc, this seems like a net loss to everyone on the longer timescale.
To finalize and maybe clarify: these discussion always seem to end up in a "well, companies maximize profits!" while ignoring the negative long term implications of that strategy.
In labor economics, they refer to that slightly higher price (compared to the minimum clearing price) as an "efficiency wage" - it describes the same thing you describe above. Only note that this is a profit maximizing behavior - as companies pay out efficiency wages to avoid turnover costs or an unproductive workforce.
> It's important at to say that the organization that funded these events was 501(c)(3) aka "non-profit" and we therefore were trying to minimize costs.
Were they actually a charitable organization, or a non-profit? Because those are not the same.
The Firefighters Association at my fire department held a 501(c)(3) for years, but were not inherently meant to be (because although we didn't solicit outside donations, and did do community service/donations, we also used association funds to do things like member events).
Quoth the IRS, Publication 557:
Purposes deemed to be eligible:
- Religious
- Charitable
- Scientific
- Testing for public safety
- Literary
- Educational
- Fostering of national or international amateur sports, and
This is exactly my reaction whenever I see things like this. Profit margins are not the DRIVER for any of these market changes, they are the end result of all the various factors at play.
The profit motive & margins fund lobbyists and political campaigns to change policies that absolutely drive these market changes.
We could choose to have anti-trust measures with teeth. We could choose to tax assets. We could have progressive corporate taxes to encourage smaller company sizes and more public transparency. There are so many things we could choose, but the ones that we do choose are the ones that shareholders lobby into place to generate ROI.
This is either a feature or a bug, depending on whether your income flows through line 1 or line 7 of your 1040.
All of those things are independent from nominal price/wage increases. If higher pay was such an unalloyed good, why doesn't the government just pass a law saying "Whatever amount you were getting paid on 6/26/23, now you're getting paid double that, and you have twice as much money in your bank account."?
Because no one would actually be better off. Prices would instantly double. It's just a change of units, like going from getting paid in $ to getting paid the same amount in ¢.
> Because no one would actually be better off. Prices would instantly double. It's just a change of units, like going from getting paid in $ to getting paid the same amount in ¢.
This is so basic but so many people miss it. I have continually explained this to my parents. It doesn't matter how good your 401k is doing if it leads to eggs being $12 a dozen in your retirement.
Historically, that hasn't happened when worker's wages increased. Prices do tend to go up (they always do) but not to the degree that it makes the wage increases worthless. When minimum wages go up, workers lives improve. Also, when companies don't have an excuse, consumers simply won't pay $12 for a dozen eggs. Every consumer has some idea of what things are worth and if a company tries to jack prices up for no reason consumers feel cheated and stop paying.
There's zero reason why companies can't all just triple their prices right now, except that if they did, people wouldn't pay and their profits would drop. Companies constantly test consumer's acceptance of price increases and usually only increment their prices slowly so that the next generation they rip off doesn't know any better having always grown up with the slightly higher prices.
The supply shortages of the pandemic broke the system. It gave every company an excuse for price gouging, and at first, much of that was legitimate supply/demand and consumers were understanding. Then as the supply of goods came back they started using the inflation narrative (complete with "printed money" excuse) to justify further increasing prices, but now we have a growing pile of evidence that they were lying and were just pocketing the extra money. Naturally, and rightly, people are starting to feel ripped off.
You make an assumptions that is false. 1. Minimum wage increases != wage increases. It's a small subset. The poorest of the poor is never the problem.
> Every consumer has some idea of what things are worth and if a company tries to jack prices up for no reason consumers feel cheated and stop paying.
The recent inflation proves otherwise. Many costs have remained sticky for no added benefit. If this was true then we would never have inflation - because the inflation the last 2 years has been so extreme that your belief should have come to pass without any help and much earlier when the supply shocks subsided.
> Then as the supply of goods came back they started using the inflation narrative (complete with "printed money" excuse) to justify further increasing prices,
This just proves the point further - consumers continued spending despite the rising costs. But now you'll say they're only now started to feel ripped off? Seems awfully convenient for your argument, but isn't consistent. What is consistent is that raising interest rates have helped somewhat.
The fed is doing the right thing and yes it impacts wages as it impacts other asset classes. Again, if your eggs cost 300% more but your wages increased, it doesn't matter, in the end you're still likely losing.
> It's a small subset. The poorest of the poor is never the problem.
You're right that we've never seen the effects of raising everyone's wages at once.
> This just proves the point further - consumers continued spending despite the rising costs. But now you'll say they're only now started to feel ripped off?
For the first two years of the pandemic, people weren't happy about the price increases at any point, but they were both desperate for the familiar comforts they'd been denied (due to lock downs, businesses being shutdown, or supply shortages) and also they understood that there was a unprecedented global crisis going on, so they expected that prices were higher due to issues outside of anyone's control. American households went heavily into debt to get the things they wanted and felt that they deserved after all they'd been through and sacrificed.
As soon as the supply started to return to normal consumers were flooded with messages about how inflation was driving up prices and companies said to consumers "We know our prices are higher, but it's not our fault! It's this damn inflation that's to blame! We're all in this together!" and so consumers felt they were being ripped off, but not by the companies. Instead they were told to blame the pathetic amount of disaster relief people got in the first years of the pandemic so that they could keep their rent paid and feed their families, and we see that even after all the evidence we have of companies making record profits there are still people in this very thread who blame "money printing" for the rising prices.
Companies were able to deflect blame very well, even as one by one, examples were coming out about how certain companies and industries making money hand over fist. Over the last year or so more and more people are starting to catch on and feel like they have been being taken advantage of, which they have been, but it's not a binary switch where every consumer suddenly stops paying for things that are clearly over priced. Many consumers have been buying less.
I know people who no longer buy goods they used to, or don't buy them as often because of the unfair prices. I myself have a list of companies I don't buy eggs from anymore because they were caught raising prices while blaming "bird flu" when they were not impacted by it. People do respond negatively to unfair price hikes, but in the last few years they were lied to and fooled into thinking that "We're all in this together" and are now in the process of learning that they were being cheated. That's what this article is. It's teaching people that they were cheated. Not everyone one will read it though. It'll probably take a while before most everyone understands that they have been being ripped off and start acting accordingly, assuming that they don't just feel defeated.
It's also harder for consumers to counter giant unnecessary price hikes when every company is doing it at once. If my kids want PB&J for school lunches, and every single company selling peanut butter raises their prices by $3, I'm kind of screwed! If the meat industry raises their prices again and again after pulling in record profits for the least two years I'm still stuck paying the price if I really want a cheeseburger. Lack of competition means that it's harder for consumers to get alternatives at reasonable prices, and for some products no alternative will be equal.
What I can say is that driving worker's pay down isn't going to cause a single company to lower their prices. It's just going to cause large parts of the US population to be priced out of things they could once afford. Companies won't care though. They'll charge everyone else more to make up for it. That means eggs still cost more, only now most people don't get to have them.
The source of the problem isn't wages, it's greed and until the source of the problem is addressed and dealt with every consumer, rich or poor, is going to suffer for it one way or another.
> You're right that we've never seen the effects of raising everyone's wages at once.
We just saw it - a year ago - and it coincided with the worst inflation in decades. Look at the 80s - same thing - high inflation and high wages go hand in hand. They're not to blame, per se, they're just a clear indicator of inflationary periods of time.
Of course it is nonsense to solely blame pandemic relief (vs years of cheap cash and PPP loans) for inflation. I don't think you give the American people enough credit. They're not stupid drones going around. They want to buy things, and they didn't care that it cost more. Companies caught on quickly (like anyone else would.) Compound that with the fact that most conveniences are staffed by wage slave jobs that most americans would turn their noses up at, then you have rich people waiting in long lines at McDonald's as opposed to cheaper options.
> The source of the problem isn't wages, it's greed and until the source of the problem is addressed and dealt with every consumer, rich or poor, is going to suffer for it one way or another.
No one is saying that wages are the source of the problem. They may contribute a small piece. In any case, railing against "greed" borders on the mythical. Why is the voracious apetite of many american consumers not considered greed, as well? Moral crusades have no place here, in my humble opinion.
No, because the profits would go towards taxes instead of profits, but that doesn’t lower prices. If you do lower prices, you would end up with shortages.
> And this permits companies to increase prices, and produce higher profits.
It's worth noting that this mostly reflects short-term pricing power. It takes a lot of time for new competitors to enter any industry. So we should expect these price increases to occur rarely and be somewhat time-limited as competition ultimately reestablishes itself.
In ideal world. Stuff like groceries are such a rigged market that (well I'm sure somebody already wrote a book about it, recommendations?) it puts financial institutions to shame. Just a few brands own most of the stuff you buy [1] and then supermarkets have deals with those. Both protect each other.
I mean market finds its way, people can move to small stores and non-branded products if it gets bad enough, but to paraphrase, market irrationality can outlast people's well being.
I'm not in favor of some more regulations which usually only help big players, but corporations power steadily climbs and I expect it to become bigger than those of governments.
New big companies, some decent competition, come from places when there was none. They hardly ever can push themselves into existing markets. They create new ones. But we still need groceries, gas, electricity etc.
Sure, but that assumes that people will do nothing in the long term that affects their spending behavior and will just eat the cost indefinitely.
If groceries tomorrow cost 10x I would not suddenly be spending 10x my current grocery bill. Luxury purchases like snacks, soda, premade sauces, candy, off-season produce, would be on the chopping block. Anything non-perishable would be bought in bulk during sales and wholesale clubs.
And for people who are already scraping by it would result in a 10x grocery bill which they can now not pay.
There's only so much money you can squeeze from a stone in the long run. Rising prices like this changes consumer behavior but can't make money appear out of nowhere. Since food is one of the easiest ways to belt-tighten rising prices across the board has the risk of reducing the wallet share food producers have.
In my country (Poland), it's various local suppliers. Some large, some mid-sized. Basically, whoever agrees to do the job for the least amount of money, it seems.
In the US its often just the brand name slapping a label on for the store. There aren't any local suppliers for things like paprika when McCormick already cornered the market 100 years ago.
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.
That would be true if not for regulatory burdens that larger companies can afford to shoulder. We just watched a progression from "OpenAI has no moat" to OpenAI begging Congress for regulations to stop them from killing grandma. If you can't get a foothold in the market there's no point in acquiring you.
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.
Apple has lots of competitors and doesn't even have dominant market share.
Google is hard to compete with due to network effects, because they don't often miss tricks, and because they've invested so heavily in core R&D for so many years. The classical story about competition is that a big rich company becomes complacent and stops improving their products, opening a gap for new companies to enter, but Google hasn't really done that, they continue to tweak and try new things (arguments about search quality specifically for precise programmer queries aside).
Amazon retail is hard to compete with because it's not a very good business. They keep margins extremely low for not entirely rational reasons, which is why most of their profit now comes from AWS. AWS meanwhile does have competitors.
You don't need to raise money to do that, because your profits being high from lack of competition allows you to build up a nice war chest, then spend it on protecting that lack of competition. It's not difficult at all, it's literally how every single area of commerce right now is owned by like two giant conglomerates. From tools to bathroom cleaners to crackers.
These acquisitions end up paying for themselves. Just look at semiconductors, where some of the only "value creation" is in ever bigger companies buying each other. You have Analog Devices buying Linear Technology for $14B in 2017, then buying Maxim for $20B in 2021, both of them massive competitors and themselves the result of countless acquisitions over the years. And it repeats all over, Intel buying Altera, AMD buying Xilinx, NXP merging with Freescale..
Except the leaders of a competitor will almost always take a big exit and let the private company be bought, because fuck you, got mine. You only need to convince a few people to take a payday, and most people are not running businesses out of some strongly held ideology of public market competition, but rather because they want to be rich.
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.
I came here to make the same point - you are spot on.
Companies raise prices whenever they can and lower them whenever they have to. Which is true for everyone - we demand higher wage when we can get away with it and suck it up with lower comp when we can't.
To your point, companies can't max out the prices whenever they want (or an apple would cost a hundred dollars - why not?) They have to deal with a world of consumers and competitive response.
As a consumer, my response to a raised price could very often be to drop demand (I like apples but not at a $100 per) which then punishes the overall revenue of the supplier. It also draws competition (I wasn't gonna plant an apple orchard in my back yard but now that apples are super valuable, I will. And I am going to undercut your $100 apples to get the business.)
In general this process has worked to generate an affordable plenty for us. Lamenting something at a narrow point in time is myopic.
Maybe... but if competitors realize that the established companies can just lower prices once they enter the market, it might not make sense to enter the market at all.
This is how it works in a reasonably competitive economy. The economy is not competitive for the EU markets that matter and this means time beyond what you call short term doesn't see many new entrants.
Unless by long term you mean waiting until the EU has a competitive economy. That's not what most economists do.
> Some of these higher profits will be passed on upstream
Profits by definition are not passed upstream, as profits are what remains after you take out costs from revenue. Anything that gets passed upstream comes from costs
Technically, the companies guess the price elasticity of a product. This tells them how a price change influences demand. Then, it’s a simple calculation to choose the right price.
> this permits companies to increase prices, and produce higher profits. Note, their upstream providers are doing the same, and some of these higher profits will be passed on upstream.
No, upstream price increases are included as a part of their increased expenses. Any increase in profits is on top of this.
I'm not sure about that. It's more likely that each of us has a lot of different stuff to care about, more and more as we transition to adulthood, families, etc, and it's not economical (as in time+energy) to care too much about prices and wages as long as we can get what we care about. When the money run short, it changes.
If they still have credit they are not short on money by definition. When (where) people have no credit, they spend only what they must or less than that.
Economic power, and therefore political power, is concentrating in fewer and fewer hands which allows them to exercise force over competition rather than to compete with competition.
Competition is the back pressure on "greedflation" which is a name that implies greed (which is good in capitalism) is the root cause of increasing prices rather than lack of competition (regulatory capture/citizens united).
It boils down to consumer/labor power.
Labor power represents the ability to make companies compete through regulation or to put the profit these companies reap into labors pockets instead of owners pockets, which is not just a shift of economic power, but of political power. Wages have nothing to do with your labor and everything to do with your market power. Companies collude behind the scene to suppress wages: https://news.ycombinator.com/item?id=29834753 There are companies that sell "market data" which tells companies how much labor should cost.
Unions are the answer to oligopolies and oligarchy. Unions are what you can do, not what somebody else needs to do, or what the government needs to do. Unions are a vehicle of force. Unions are like the 2nd amendment. You can use both to fight tyranny, and in the process put yourself at risk. Trying to make the powerful less powerful requires risk because the powerful will use their power to keep their power.
These oligopolists (https://en.wikipedia.org/wiki/Oligopoly) are exercising tacit "collective bargaining" but people who earn money in proportion to time seem unable to do their own collective bargaining.
Until there is back pressure on corruption, which requires exercises of power against the corrupt, we can expect things to get worse and worse and those with power to be able to leverage the rules of society to grant themselves more power.
From a textbook economic perspective you are, of course, correct. And your conclusion that we shouldn't hate the player is also correct!
But that doesn't mean that we can't hate the game.
Capital-isms and market competition are two very different things.
Currently we have A LOT of capitalism AND very uncompetitive markets.
What we need are competitive markets, and the -isms hawked by the multi-generational holders of Capital be damned. (Which, these days, put far less stress on competition than they typically did in the late 20th century. See: Venture Capital-ists clamoring for regulation in greenfield markets, on the explicit basis that too much competition is dangerous!)
What does this look like? Primarily:
1. Stronger anti-trust laws,
2. more anti-trust enforcement,
3. assurance that labor markets are efficient,
4. lowering the barriers to entry for new competition, and
5. substantially shifting the tax burden in the meantime.
Nobody is ever forced to "play the game" so you absolutely SHOULD hate the player. They are choosing the play a game that hurts others and rewards them.
Hating holders of capital isn't effective, either rhetorically or as a policy motivator, at least in the west, at least for now. I mean this in the descriptive sense, not as a moral or personal opinion.
Stronger anti-trust, stronger worker's rights, more equitable ownership of firms/real property/capital, etc. -- none of this requires hate, and most of it is actually entirely consistent with the bedrock principles of late 20th century Capital-isms.
Funny, because the way the US got most of it's worker rights and protections was pretty violent strikes in the early 1900s. It used to be reasonable for your union to have arms, and be shot at by the pinkertons. Employers, I don't care why, choose to do whatever it takes to keep me paid poorly and without power, and not hating that is just pathetic.
> Currently we have A LOT of capitalism AND very uncompetitive markets.
I've been bemoaning lately the degree to which we ('ordinary folks' as they say) are essentially shut out of whole industries.
Want to open a grocery store and go against the local Kroger? A drug store and go against the local CVS? A hardware store and go against the local Lowe's?
I think the only way I can get into the new-car dealership aristocracy here in LOCAL_TOWN_USA is to marry into it.
Restaurants, nail salons, small trades, franchisee.... It's good that they left us a few scraps I guess.
Normally technology, wars, and revolutions are the only ways that these massive aristocracies are disrupted. And even then, many hold on.
I do not see a path toward technological upheaval. If anything, exactly the opposite. E-commerce proved to be winner-take-most, and for anything in the real economy it's yet another significant capital input required to compete.
I think the next 100 years will prove to be a real stress test of the "elections not revolutions" hypothesis regarding representative democracy. Both Europe and the USA failed the last several attempts at peaceful major social upheaval, so I'm unfortunately not holding my breath...
“Some of these companies will go out of business.”
Many of those companies will be producing superior products, niche products vital for a small market or are simply more focused on delivering value rather than leeching profit.
The surviving companies in a rough market turn never seem to be the ‘best’ companies.
> This is what has happened to car sales: the manufacturer didnt capture the difference, so the dealership captured it instead
Only works because dealerships have a monopoly over local sales (i.e. not a free market). Otherwise everyone would be buying their car online without the markup.
A huge problem are the cartels that are usually 2-3 companies that has almost all the market share. They increase the prices, which reduce demand, then they tell the producers to lower the production in order to keep the prices artificially high. If we want to keep the capitalist system governments need to address corruption, monopolies and cartels, and allow free trade between countries. Anything that hinders competition should be illegal. If you own a platform or network you must allow competitors to operate for a reasonable cost. Any mergers that would allow one player to grow beyond 5% market share should not be allowed. (in order to make sure that in any market there are at least 20 competitors). Anything that is anti-competitive should not be allowed. Only way to compete should be to make either a better, or a cheaper product. Our governments are a joke, they are charades and full of corruption.
> Only way to compete should be to make either a better, or a cheaper product.
I think this is a core part of the anti-competitive problem, though. Economies of scale mean that a company with a 50% market share is going to make the cheaper good, all else equal.
We would effectively need to increase competition at the cost of increasing efficiency to make that work (e.g. by banning mergers of larger players).
I find this an extremely odd and uninterpretable article for this reason. When people say that "x drives y" they usually mean that "x causes y". And inflation is by definition price hikes. So article seems to be saying that "corporate profits causes price hikes", which is meaningless since the causal direction should be in the reverse (price changes cause profit changes).
The fact that labor costs (which are part of a company's profit calculation) are considered a separate "driver" makes this even more confusing.
In an inflationary period, consumers expectations change allowing more movement in this price than normal. And this permits companies to increase prices, and produce higher profits. Note, their upstream providers are doing the same, and some of these higher profits will be passed on upstream.
Companies that are in a weaker market position, will find themselves unable to raise prices as much as their competitors.. and if their upstream providers find demand enables them to raise prices more than they can, they will find their profits decrease. Some of these companies will go out of business. This is one of the ways that inflation rids the market of less desirable companies.
Cost-plus pricing (how many consumers imagine pricing works) has almost entirely gone away in retail pricing. Even if a producer does this, the retailers will market adjust the price themselves... This is what has happened to car sales: the manufacturer didnt capture the difference, so the dealership captured it instead.