Corporate profits have contributed disproportionately to inflation

https://www.epi.org/blog/corporate-profits-have-contributed-disproportionately-to-inflation-how-should-policymakers-respond/

by jhallenworld • 4 years ago

42 15 4 years ago

epi.org

hcurtiss4• 4 years ago

These articles are just nuts. I work in the lumber manufacturing business. We always sell to the highest bidder. We sell to the highest bidder when prices are high and we sell to the highest bidder when prices are low. How else would we do it? Would we tell the highest bidder “no” and sell our lumber for less? If we did, to whom would we sell? Would we hold a lottery or something? If we did that, we’d sell out immediately and there would be shortages. This narrative of price gouging has taken hold, and Biden very explicitly has accused American corporations of being greedy. But at least for commodities like oil and lumber, and I have to believe most other products, you’re always going to sell the product for the most the market will bear. Prices go down when people stop purchasing (which reliably happens every time prices go up too much). This is all very basic and at least in my business it’s all definitionally true.

jhallenworld4• 4 years ago

Commodities are sold in an auctions like this, but most products in general are not. The selling company has to actively raise the price. In the case of commodities, in a free market, greed should lead to increased production. But oil is at least partially controlled by a cartel. The cartel knows that the price of gas directly influences the US election, so if they don't like the guy in office, they just limit production.

The oil company CEOs seem to want to be coddled. They feel bad that there is emphasis placed on solar and wind, so they refuse to increase production.

legitster2• 4 years ago

2 things:

- It's hilarious that oil companies are now being maligned for not producing enough oil. Damned if you do, damned if you don't I guess.

- Oil is something that you can't just turn on or off. Especially when it comes to refining it. US diesel production, for example, was tooled to rely on heavy, sour crude from the Balkans that we no longer get.

hcurtiss4• 4 years ago

At least in the US, oil production is most certainly a competitive commodity market. Like lumber, buyers are constantly seeking the lowest price and sellers are seeking the highest price. Always, every second. You can see this on the commodities boards.

The question of supply is a separate question. No American major is curtailing production to increase price. None of them have that much market leverage. I assure you, if the oil companies (both majors and juniors) thought the capex would pay, they’d make the investment. But two years of high prices cannot justify the cost of a new oil rig with an eight year projected payback. Particularly when the party in power is explicitly promising to outlaw their business model. That means when demand surges as we saw the last couple years, there will be little surge capacity to respond and prices will increase.

legitster2• 4 years ago

It is unlikely that either the extent of corporate greed or even the power of corporations generally has increased during the past two years. Instead, the already-excessive power of corporations has been channeled into raising prices rather than the more traditional form it has taken in recent decades: suppressing wages. That said, one effective way to prevent corporate power from being channeled into higher prices in the coming year would be a temporary excess profits tax.

I appreciate that they don't claim there is some invisible "greed" metric that it somehow higher now than before. But this still feels a bit half-baked. If this is so much more successful than suppressing wages, why not do this this whole time? Also, why does inflation continue even when the stock market is suppressed?

I think everyone is really ignoring what happened supply-side the last few years. We lost a huge amount of suppliers, especially in sectors with inelastic demand (like energy). With a semi-artificial constraint on the economy, of course profits are going to be higher. If you are a US oil producer, a war in Ukraine was the best thing to happen to your business.

Focusing on the corporate profitability kind of misses the forest for the trees - prices are higher because there is just less stuff.

deepsquirrelnet• 4 years ago

Focusing on the corporate profitability kind of misses the forest for the trees - prices are higher because there is just less stuff.

I don’t think the article missed that. Their major point was that the reduction in supply and increase in demand for goods (as opposed to services, which collapsed during the pandemic) gave them outsized power over setting prices.

If this is so much more successful than suppressing wages, why not do this this whole time?

Because if there is not constraints in the supply chain, it’s not an option. When supply is able to meet or exceed demand, only illegal price fixing can do what you’re suggesting.

hcurtiss4• 4 years ago

At least in the lumber business, prices have been sky high the past couple years and production has literally never been higher. All of us are producing full throttle and have been ever since about May 2020 after a couple month dip. At least in the context of lumber, this idea that pricing is all driven by supply constraints is just wrong. It’s driven by truly and objectively unprecedented take-away/demand. Those prices are presently falling as Powell closes the easy money tap.

bcrl• 4 years ago

It doesn't help that the US keeps throwing tariffs on top of Canadian softwood. Let's increase inflation by raising prices on a critical input to housing construction!

CompelTechnic• 4 years ago

Turns out that when you overheat the economy by printing money and giving it to people for free, people buy so much stuff that most producers are running at capacity and can sell at high margins.

rongopo• 4 years ago

Very interesting. I like analyses that go beyond traditional thinking. A bit more of rigour would help.

kazinator• 4 years ago

abnormally high contribution of profits to price growth

Isn't this basically saying that corporations have jacked up prices all at once, just to gouge consumers?

If so, why not say it that way?

What's the difference between "contribution of profit to price growth" and "rip-off"?

Corporate profits have contributed disproportionately to inflation

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