this post was submitted on 10 Aug 2023
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Occam's razor says the more simple/plausible explanation, that a huge increase in the monetary supply causing higher prices through supply and demand, is about a thousand times more plausible than tens of thousands of corporations simultaneously deciding to coordinate to fix prices despite that it's in each of their best interests individually to break with that scheme. With no actual evidence of a concerted attempt across the entire economy to fix prices (not to be confused with a couple corporations having board meetings where someone bragged about raising prices).
Or, in simple terms - it's not that every single other good in the entire economy has suddenly become worth more as the result of some overarching conspiracy. It's that they printed a bunch of money and it's now worth less.
I would recommend anyone who still believes the "greedflation" thing spends an hour reading some articles critical of the theory. Not really looking for a debate about it tbh.
"Not really looking for a debate about it tbh."
No, just the last word. There's a lot more to it that clearly explains why it's a systematic failure that led to this, and it's a lot more complex that just over supply of cash. You can't stop looking at other facts once you've researched just enough to find an answer you're comfortable with.
Your previous comment was basically a massive industry wide conspiracy theory though, so their response of a more sensible answer to give you something a bit more concrete to go on was pretty reasonable to me.
Not a conspiracy theory but the inevitable conclusion of a system left unchecked by regulation for too long. We have slowly rolled ourselves to the edge for decades yet have been able to maintain a very precarious balance, until a worldwide pandemic kicked the cart and set it rolling down the hill.
Did the entire planet have too much cash and an urge to spend it all at once? Yes. That only explains the flashpoint where prices exploded. Demand was at an unprecedented high from the world coming out of lock down at the same time that supply was at an all time low thanks to the pandemic. (There's a lot more to all of this of course, but there are going to be countless PhD thesis written about this macroeconomic clusterfuck and this isn't one of them.) So far, this all makes sense. Where things go sideways is when supply stabilizes, cost of goods sold start to go down, and yet prices continue to rise. Remember how the fed thought that information was going to be a short, temporary spike that didn't require intervention? This is why. They expected the system to autocorrect, but it didn't. Prices continue to rise. People have less money. Prices continue to rise. Interest rates skyrocket in an attempt to cool the economy. Prices continue to rise. Consumer spending slows but prices rise.
Corporations are literally geared towards maximizing profits. It's not a conspiracy if they are working as intended. The failure, IMHO, is in how we have chosen to manage our economy. Complete deregulation and a slew of other choices have brought us here. Not a conspiracy but also not as simple as "too much money" or "too much cheap credit". So, amending my original comment, yes it is in part inflation but it isn't just inflation.
PS: Credit card debt in the US surpassed $1T. We're running on literal borrowed time and every business around us is trying to find new and creative ways to squeeze every penny we don't have out of us, by design, without a check or a balance in sight.
It is specifically a conspiracy theory that there's a price-fixing cartel across the entire economy. You can give rhetoric about unchecked capitalism and all this, but the fact still remains that we're talking about hundreds to thousands of companies that would have to opt into this scheme (drawing the line fairly arbitrarily at "the ones that comprise most market share").
I raised this point already - individual corporations are incentivized to break with a price-fixing scheme because it increases market share. Consumers don't want to pay exorbitant prices if there's any alternative. Didn't hear a response.
You keep saying "across the entire economy" but not every sector of the economy was equally affected.
Also, there is good competition in some sectors (where it's easy and cheap to produce the product and the supply chain isn't very complicated) and definitely not others. Look at gas prices, which were involved in a lot of the inflation and its secondary effects. You can save a few cents here or there by shopping around, but otherwise the price is relatively similar (and relatively high) everywhere you look in an area.
In some sectors there's basically no competition at all. My Internet bill rose, do you think that's because of the money supply or because there's essentially no competition amongst telecom providers basically anywhere in the country?
A huge part of inflation is still rising rental rates. In my city about six companies own most of the large apartment buildings that people live in. Something tells me they'd have no problems raising rents between the six of them just because they easily can.
Sure, but the proponents of "greedflation" are generally describing across-the-board simultaneous price increases across a ton of different industries. To be sure, inflation always has different latency periods for different industries.
So, I mean, your basic premise is true that competition affects price behavior. I would caution against going for the interpretation that just because something is expensive or complicated to produce, that's going to result in a lack of competition. Oil/gas specifically is a global industry. The market breaks down into coordinated nationally-owned orgs (OPEC, mostly Middle Eastern/African) and publicly traded oil producers (Shell, Exxon etc). Now, to be sure, we all know the industry is shady as fuck, influences global wars, etc. But regardless, these interests are still in competition with each other on the open market. Shell and Exxon don't have monopoly licenses to import oil to the U.S., the commodity is traded openly. At the local level, this breaks down into gas stations (either franchise/branded or independent, which reflects in the term of the contract the station has with their provider). These days, we do have trivial ability to comparison shop between providers (Google Maps even has the price when you search for gas stations). So there is market pricing feedback at all levels. A company that tries to price gouge can be undercut. The reason you see similar prices isn't really evidence either way - that's exactly what you'd expect to see in a competitive industry where the quality of the product isn't that variable. It's certainly not impossible that ten, twenty big oil corps could conspire to coordinate prices, but that specific thing remains to be proven. As for why they achieved such high profits in the last few years, esp. in 2022, well, the simple explanation would be that they didn't pay as much to produce their existing stock and the global instability in the market created a bidding war for the available supplies, especially for oil as Russia's gas supply to Europe was cut. You can call that "price gouging" but that's how markets operate, the whole point is that transitory increases in prices are supposed to incentivized increased production to alleviate a supply crunch, and vice versa when prices sink.
The topic in general does raise deeper questions like, why do private companies get to profit heavily off of preexisting natural resources, but that's another topic.
Now re: telecoms - this is a whole second issue. There are single providers in a lot of areas, for a bunch of reasons (PITA to deploy to rural places, municipal agreements limiting telecom deployment to a single provider, etc.). That is more "infrastructure" like, ergo, what most people would say is more deserving of being run by government, or IMO, by NGO non-profits/cooperatives. I know firsthand the BS Comcast pulls with jacking up their prices to $200/mo or whatever when they can get away with it.
That's the far end of the spectrum tbh, competition in property/rentals is very high and generally non-monopolized. You may see six major companies controlling a lot of rentals locally (exact numbers would be useful here), but you also have individuals being able to rent their own property, you have the fact that people do have the option to go elsewhere - for the question of price fixing, the threshold is basically just, is there enough competition that one provider can't just arbitrarily decide to increase their prices without losing market share. If you raise prices and people move to another provider, well, you can't really price gouge. It's not unheard of to have a price-fixing cartel, but it's not just something you can assume exists by default.
Considering I gave you multiple opportunities to be anything except a corporate apologist and you're basically shilling for OPEC+ (a cartel), Comcast (a monopolist in most areas), and landlord corporations, I'm going to file you with the rest of the "right-wing libertarian" fun bunch.
Markets aren't naturally competitive. That statement is borne out through centuries of history as well as the philosophical texts that capitalism is often said to be founded upon.
It's one of the government's jobs to keep markets competitive through anti-trust enforcement, consumer protections, and other items in their rule book (anti-price gouging laws, preventing giant, harmful mergers, anti-usury laws, etc). The reality is that they haven't been really doing this job since the days of Reagan.
You have a lot of need for proof from others for their stance that greedflation exists, but I'd like some proof that these markets are actually functioning well without government intervention, because as a user of these markets I see very little choice, very little "innovation" at all, a lot of rising prices, and a lot of quarterly calls where people in these industries are bragging to investors about being about to achieve record profits.
QE forever does explain the recent weirdness in the housing market, because it's one of the only areas of the economy where Joe six pack can buy a mostly leveraged asset using funds from big banks, but it does not solely explain why rent prices keep soaring despite landlord's costs not really rising in many areas. It also doesn't explain many, many other inflation scenarios.
EDIT: Also, raising prices due to greed does not have to be coordinated in the shadows like you're saying. A lot of c-level executives talk on their quarterly calls about how "there's still an opportunity here for us to raise margin" and "the market is still indicating that the higher prices can be absorbed by the consumer" and such. It doesn't take smoky backrooms to look at the environment you're in and say "Hey, I think I could raise prices right now. Why not? Everyone else is doing it and blaming it on inflation".
Wtf. Didn't I just outright call Comcast an abusive monopoly. Not bothering with this.
Maybe stop* trying to file people away in categories and take them at what they actually say.
You produced some giant wall of text apologizing amongst other things for it being a "PITA" to run fiber, ignoring the basic facts that: a) that's their fucking job, and b) the government has paid telecommunications companies multiple times to run them and they still haven't done it, and c) they fight against municipal efforts to run the fiber themselves.
I wrote a four sentence paragraph saying why they have a monopoly in a lot of places, saying the entire economic model around them should be replaced, and accusing them of using monopoly power to price gouge. It's incredible how this is the exact opposite of what you're accusing me of saying.
Here's your paragraph:
pretend that they're isolated in their market behavior because of some innate peculiarity in this market
apologize for the difficulties of being a telecom provider, and pretend that exclusivity in localities isn't something they directly lobbied for (i.e. corrupted the local government for)
"most people say this is the government's job" most people? Ok. Is that what you're saying?
I too am getting fucked by Comcast... Ok? Great.
It's not just telecommunications companies that have these problems. Do a depth analysis on other market segments. Everywhere you look in the US economy there's an orgy of monopolistic or duopolistic markets, cartels, price gougers, government corruption, endless corporate acquisitions, and every other type of anticompetitive behavior.
Just doubling down on the bad faith. Yep, not playing this game. Not everyone is your enemy pal.
Company A raises prices and reports record quarterly profits. Company B is aware of this because both the price raising and quarterly profit report for Company A are public. Company B raises prices too so that they can get also get more profit. Company C either does the same thing, or there is no company C because rubber stamped mergers and acquisitions for decades have allowed a handful of companies to dominate every industry, sometimes multiple industries.
None of this is a conspiracy. It's Econ 101 level "how things work."
Econ 101 covers supply/demand curve, i.e., how markets create prices as an equilbrium between consumer/producer, and how a company arbitrarily spiking prices will cause them to lose market share because their customers don't want to pay more for the same thing.
You believe whatever you want. Can lead a horse to water but can't make him drink.
I'm sorry you're under the impression that the economy is controlled equally by tens of thousands of corporations. Its much more like 2 dozen control nearly all money that presently exists. They wake up everyday and fix prices. They've been doing it a lot ever since 2008 and the utter downfall of consumer protections. I also have no fucking clue what you mean when you say that not fixing prices is in their best interests?? Like, you realize that by price fixing they make billions of dollars more than they should be? How tf is making even more money not in the interest of a corporation? They literally profit off of wars. Any possible thing that increases the amount of capital they generate is in their own best interests. Even employing children, or slaves. Capitalism is designed specifically to be exploitative of as many people as possible to generate as much capital as possible.
There are 8 million businesses in the U.S. We have problems with monopolization, but to the level where a cross-economy price fixing scheme could possibly be implemented, we are not at that point. That's an extraordinary claim requiring extraordinary proof, not something to just believe dogmatically because you don't like capitalism.
You could start by just asking me. This is basic game theory. Market price of a good is 10 dollars, ACME and BLLC corp meet and fix prices at 15 dollars. ACME corp goes to market at 15 dollars, BLLC corp goes against the secret agreement and goes to market at 10 dollars. BLLC gets ACME corp's customers as long as they retain their price at 15. Now take the same example and spread it across hundreds, thousands of companies, keeping in mind that this level of coordination would leave behind proof, witnesses, and take an extraordinary level of coordination. Non-participation in a price fixing cartel for a minority company could mean capturing the entire market, and anyone who was participating would immediately be incentivized to exit it.
This is what is being posited, versus the dirt simple explanation that more money has been printed and has thus decreased in value. And we know a ton of money was printed.
Price-fixing cartels aren't impossible, however, they do become completely impossible to create or maintain at a scale like that. There is simply way too much competition. It's an extremely elaborate, poorly substantiated theory to explain something there's an obvious, well-substantiated explanation for already. I don't know how you guys think about applying the scientific method, but to me, that ain't it.
Perhaps real life is more complicated than something you can read in an introductory textbook.
Gosh, never thought of that.
Just gonna leave these links here.
https://www.theguardian.com/environment/2021/jul/18/america-food-monopoly-crisis-grocery-stores
https://www.webfx.com/blog/internet/the-6-companies-that-own-almost-all-media-infographic/
https://finance.yahoo.com/news/handful-companies-control-almost-everything-152800823.html
Yup, well aware how much monopolization there is.
Here's corporations in the US by market cap:
https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/
Keep in mind we're not talking about simply "6 companies dominate a single industry". The burden of proof for "greedflation" is simultaneous price-fixing behavior across the entire economy. Across essentially all corporations.
It's called price leadership and it is an extremely well established phenomena in economics.
It's an established phenomena. But, just because it's established as a concept, doesn't mean it's prevalent, or especially not that it could be used to explain simultaneous increases in prices across the entire economy.
Here's an introductory article on price leadership:
https://www.investopedia.com/terms/p/price-leadership.asp
Breaks it down into "barometric", "collusive" and "dominant" categories. Going through each one -
Barometric being the phenomena where all the firms in a space look to the dominant firm for indication on what to do with their prices. Assumes heavy market concentration in the dominant firm and a marked imbalance to analyze market trends or predict upcoming cost shifts on the part of other companies. Does not make any sense in a space with several near-equally sized entrants in the market exist with similar capabilities for determining prices and macro conditions.
Collusive being where they have actually agreed to fix prices together. This is of course illegal and requires ongoing coordination across basically every major company in the economy. This is mostly what we've been talking about in this thread and requires extraordinary proof, because the level of coordination required to make this happen is extreme, especially across not just one industry, but every industry. Or, to be fair, at least the basic industrial/manufacturing industries upon which all other industries depend.
Finally there's the "dominant" category. That's where a single dominant firm (or cartel of multiple firms) is setting prices - particularly, setting them downwards - and other smaller firms are forced to lower their prices to survive. This doesn't make a whole lot of sense with upwards price-fixing, because less dominant firms become more competitive as a result, not less.
That is written like a true economist.
Here’s what it looks like from a business perspective: if I am a meat packing company, I need to go to the farmers and buy the pork that is going to be processed by my factory. The pig farmer says I will sell you my pork for four dollars a pound. I asked for him to sell at two dollars a pound, but he simply refuses and sells to somebody who paid is willing to pay a higher price.
Now, I can do two things to lower the price:
I can collude with all of the other meat packing companies and refused to buy pork at four dollars a pound, and we set our willing price at two dollars a pound. If we get enough other companies to collude together as a cartel, then we can force the prices down. This is generally illegal.
The second option is through consolidation: first, I get enough money to buy up all of the other meat packing companies. Then when I go back to the pig farmers, they only have one buyer to sell to, which is my business. So I get to set the prices, which will be at whatever price I stipulate. Walmart is famous for doing this.
No..... Not to my understanding. Inflation, while an average, is not equally rising across all things. It is possible for the few that control food to raise prices together. Same with clothing and other industries. I think it's also exacerbated by the shipping fiasco during covid and the fact that corporations always want more profit. As a general rule, any time prices rise for any reason, and shipping can make everything rise together, if people still pay that price, it will not be lowered.
Yeah, so we barely touched on the actual shortage issues from COVID in the thread here. That is for the most part a short term phenomena, and prices can actually resume prior levels after disasters and such like that, while actual monetary supply increases are typically permanent. And yeah, some industries (like energy) are pretty fundamental and can affect prices in a lot of other places, and there was additionally the energy shortage triggered by the Ukraine invasion. All these factors can cause price seeking and instability, but the key thing to point out is that that's transitory, because after some time the costs of goods reequilibriate. But if you've increased the money supply 50%, then the price increases become permanent.
If you're going to bring in Occam's Razor, it's probably less tenable to argue the 'a conspiracy is more complex than the alternative' argument when there's obviously a set of shared motives driving labor costs down while at the same time pushing up profit margins. The fact that profit margins are up does a lot of damage to the 'it can't be greedflation' theory
Well, just because they have shared motives doesn't mean they're going to act in concert with each other. They're competitors. One's market share loss is another's market share gain.
It might help to clarify what "it" we're talking about here, or for that matter, what exactly we're referring to with "greedflation". To be totally clear, companies will raise prices when the market will bear it, and when they have a monopoly or cartel, that can be nearly indefinitely. The thing I'm objecting to in the first place here is the notion that that's just universally the case across the entire economy, which strikes me as ridiculous and a way for the government/central bank to deflect blame for monetary inflation. And to your point - for any highly competitive market, it's a very elaborate explanation versus just that supply and demand has caused prices to increase because the supply of money has gone up, which is a very simple and fundamental phenomenon in econ. As a rule of thumb, the more diversified the market is, the less likely that is to be the case.
We did see a big supply shock when Russia partially cut out of the global energy market, causing the market to chase after oil from the remaining producers, causing an increase in price. That's not some new phenomenon, that is also just basic supply and demand. It does cause price shocks, even if their costs didn't go up, even if labor didn't see the benefit. That's not, however, some permanent state of "inflation" like monetary inflation which is just never reversed for the entire remaining lifetime of a currency - supply shocks are transient (at least until the fossil fuels actually run out).
The problem with consolidation is that companies that gain a majority market share are operating at the lowest of margins, so there is little room for new competitors to move into that market space.
Since these companies already own the market, it is too expensive for another company to enter that market space while competing successfully. The larger and more established companies already have economies of scale that are tilted in their favor. The only way for a new company to compete successfully against an entrenched business is by leveraging new technology or huge investments to bring their cost lower than their competitors.
And we’ve seen that happen in the past with agribusiness, they get large investments and just buy up all the other companies and put them under their own umbrella.