Inflation Is At 0%

[bilby]

This isn't the companies causing inflation, but rather refraining from causing deflation.

How kind of them.

 

[Elixir]

Companies that repriced their widgets at $105 -- or more likely $110 while still blaming supply shortages -- often did NOT drop their prices when supply normalized. This converts a temporary supply shock (which does NOT affect prices long-term) into a permanent price rise. That corporations are able to make their price rises permanent is the result of oligopolic structures in American capitalism.

QFT
Too nuanced for some of our armchair evangelical economists.

 

[TV and credit cards]

And if anyone thinks it wasn't also companies padding their profit margin amongst all this chaos is naive.

Companies most certainly did pad their profit margins. But that was the consequence of rising inflation,

???

You'll have to explain how raising prices far more than necessary is a "consequence" of inflation. I do not think that word means what you think it means."

not the cause of it.

How could it not contribute to inflation?

I think what he's talking about are the supply chain shocks. There were legitimate shortages of many things, prices rose as a result. While the high surge is gone many of them did not return to anything like their baseline levels. Consumer resistance points were changed and companies took advantage of it--pretty much all my pre-pandemic measures of what constitutes a good deal went out the window.

This isn't the companies causing inflation, but rather refraining from causing deflation.

This sounds like the seller wanting the buyer to adjust to a new normal. But when seller's costs go back down, this new normal is now resulting in nothing more than an increased profit margin. Buyer get mad.
It all starts at the cost of commodities and should adjust throughout the chain to the widget seller, should it not?

 

[Loren Pechtel]

Not if the restriction in supply is due to market power.

But there's no indication that that's the case. You're just throwing out a red herring.

The irony is overwhelming. Market power works through restricts supply.

You are assuming they deliberately restricted supply.

The effort to drive costs low (and thus profits up) shaves time margins razor thin. It doesn't take much to really gum up the works.

 

[Loren Pechtel]

Wrong again. Companies that repriced their widgets at $105 -- or more likely $110 while still blaming supply shortages -- often did NOT drop their prices when supply normalized. This converts a temporary supply shock (which does NOT affect prices long-term) into a permanent price rise. That corporations are able to make their price rises permanent is the result of oligopolic structures in American capitalism.

Disagree.

What we are seeing is when things went bad the price went from $100 to $200. As things normalized the price dropped back to $120, it's going to take a long time for competition to drive it back down to $100 (in constant dollars, ignore inflation.)

Perhaps Derec is unaware that SEC-regulated corporations make their financial data public. Instead of pulling ideas out of their asses, serious analysts can determine profit margins by ... (did you guess?) ... actually looking at actual numbers!

The question is not whether the profits exist. They certainly do. The question is whether that was a deliberate strategy or simply the natural result of some suppliers not being able to deliver product for a while.

 

[Loren Pechtel]

And if anyone thinks it wasn't also companies padding their profit margin amongst all this chaos is naive.

Companies most certainly did pad their profit margins. But that was the consequence of rising inflation,

???

You'll have to explain how raising prices far more than necessary is a "consequence" of inflation. I do not think that word means what you think it means."

not the cause of it.

How could it not contribute to inflation?

I think what he's talking about are the supply chain shocks. There were legitimate shortages of many things, prices rose as a result. While the high surge is gone many of them did not return to anything like their baseline levels. Consumer resistance points were changed and companies took advantage of it--pretty much all my pre-pandemic measures of what constitutes a good deal went out the window.

This isn't the companies causing inflation, but rather refraining from causing deflation.

This sounds like the seller wanting the buyer to adjust to a new normal. But when seller's costs go back down, this new normal is now resulting in nothing more than an increased profit margin. Buyer get mad.
It all starts at the cost of commodities and should adjust throughout the chain to the widget seller, should it not?

It will adjust--just slowly. The hand of the market is powerful but often slow.

 

[Swammerdami]

Wrong again. Companies that repriced their widgets at $105 -- or more likely $110 while still blaming supply shortages -- often did NOT drop their prices when supply normalized. This converts a temporary supply shock (which does NOT affect prices long-term) into a permanent price rise. That corporations are able to make their price rises permanent is the result of oligopolic structures in American capitalism.

Disagree.

What we are seeing is when things went bad the price went from $100 to $200. As things normalized the price dropped back to $120, it's going to take a long time for competition to drive it back down to $100 (in constant dollars, ignore inflation.)

I'm not sure where the disagreement is. You used different numbers: Whippee!

As for "a long time for competition to drive it back down" -- WHY? I think it's "the result of oligopolic strutures in American capitalism."



Am I reading this graph right? Average profit was 4¢ on the dollar during the 1960's, rose as high as 13¢ under Bush the Lesser, and has recently soared all the way to 19¢. The difference is so huge there's probably some misleadingness(!) involved. But the general trend should be clear to all but the willfully.

Perhaps Derec is unaware that SEC-regulated corporations make their financial data public. Instead of pulling ideas out of their asses, serious analysts can determine profit margins by ... (did you guess?) ... actually looking at actual numbers!

The question is not whether the profits exist. They certainly do. The question is whether that was a deliberate strategy or simply the natural result of some suppliers not being able to deliver product for a while.

??? "Natural result"??? As I implied in this post with which you "disagree", prices may have risen due to pressure on margins. To suppose that neglecting to reduce prices as profits soared was not "deliberate" seems to impugn the business skills of these multi-millionaire CEOs!

 

[laughing dog]

Not if the restriction in supply is due to market power.

But there's no indication that that's the case. You're just throwing out a red herring.

The irony is overwhelming. Market power works through restricts supply.

You are assuming they deliberately restricted supply.

Nope. Market power means producers have leverage in the market to lessen the effects of competition.

The effort to drive costs low (and thus profits up) shaves time margins razor thin. It doesn't take much to really gum up the works.

Totally non-responsive. Try explaining how negative supply shocks helped some firms increase profits without market power.

 

[Worldtraveller]

And if anyone thinks it wasn't also companies padding their profit margin amongst all this chaos is naive.

Companies most certainly did pad their profit margins. But that was the consequence of rising inflation,

???

You'll have to explain how raising prices far more than necessary is a "consequence" of inflation. I do not think that word means what you think it means."

not the cause of it.

How could it not contribute to inflation?

I think what he's talking about are the supply chain shocks. There were legitimate shortages of many things, prices rose as a result. While the high surge is gone many of them did not return to anything like their baseline levels. Consumer resistance points were changed and companies took advantage of it--pretty much all my pre-pandemic measures of what constitutes a good deal went out the window.

This isn't the companies causing inflation, but rather refraining from causing deflation.

This sounds like the seller wanting the buyer to adjust to a new normal. But when seller's costs go back down, this new normal is now resulting in nothing more than an increased profit margin. Buyer get mad.
It all starts at the cost of commodities and should adjust throughout the chain to the widget seller, should it not?

It will adjust--just slowly. The hand of the market is powerful but often slow mostly fictional.

FTFY

 

[Jimmy Higgins]

This sounds like the seller wanting the buyer to adjust to a new normal. But when seller's costs go back down, this new normal is now resulting in nothing more than an increased profit margin. Buyer get mad.
It all starts at the cost of commodities and should adjust throughout the chain to the widget seller, should it not?

It will adjust--just slowly. The hand of the market is powerful but often slow.

Is that the Capitalism version of "God works in mysterious ways"?

 

[Loren Pechtel]

Wrong again. Companies that repriced their widgets at $105 -- or more likely $110 while still blaming supply shortages -- often did NOT drop their prices when supply normalized. This converts a temporary supply shock (which does NOT affect prices long-term) into a permanent price rise. That corporations are able to make their price rises permanent is the result of oligopolic structures in American capitalism.

Disagree.

What we are seeing is when things went bad the price went from $100 to $200. As things normalized the price dropped back to $120, it's going to take a long time for competition to drive it back down to $100 (in constant dollars, ignore inflation.)

I'm not sure where the disagreement is. You used different numbers: Whippee!

You said they simply raised it--but that's not what we actually saw. Prices spiked and have come down, just not to their original levels.

As for "a long time for competition to drive it back down" -- WHY? I think it's "the result of oligopolic strutures in American capitalism."

Most products are not from oligopolies.

View attachment 44728

Am I reading this graph right? Average profit was 4¢ on the dollar during the 1960's, rose as high as 13¢ under Bush the Lesser, and has recently soared all the way to 19¢. The difference is so huge there's probably some misleadingness(!) involved. But the general trend should be clear to all but the willfully.

I think we are seeing multiple factors. If nothing else, companies that control more of the production chain reduce the number of steps over which the profit is distributed and thus "increase" the profit--even though the end price is lower.

Perhaps Derec is unaware that SEC-regulated corporations make their financial data public. Instead of pulling ideas out of their asses, serious analysts can determine profit margins by ... (did you guess?) ... actually looking at actual numbers!

The question is not whether the profits exist. They certainly do. The question is whether that was a deliberate strategy or simply the natural result of some suppliers not being able to deliver product for a while.

??? "Natural result"??? As I implied in this post with which you "disagree", prices may have risen due to pressure on margins. To suppose that neglecting to reduce prices as profits soared was not "deliberate" seems to impugn the business skills of these multi-millionaire CEOs!

Companies have no duty to reduce the prices back to what they were, thus the term "neglect" does not apply.

 

[Loren Pechtel]

Not if the restriction in supply is due to market power.

But there's no indication that that's the case. You're just throwing out a red herring.

The irony is overwhelming. Market power works through restricts supply.

You are assuming they deliberately restricted supply.

Nope. Market power means producers have leverage in the market to lessen the effects of competition.

The effort to drive costs low (and thus profits up) shaves time margins razor thin. It doesn't take much to really gum up the works.

Totally non-responsive. Try explaining how negative supply shocks helped some firms increase profits without market power.

Try an economics textbook.

 

[ZiprHead]

Lowest gas price here in Michigan is $2.67.

 

[laughing dog]

Not if the restriction in supply is due to market power.

But there's no indication that that's the case. You're just throwing out a red herring.

The irony is overwhelming. Market power works through restricts supply.

You are assuming they deliberately restricted supply.

Nope. Market power means producers have leverage in the market to lessen the effects of competition.

The effort to drive costs low (and thus profits up) shaves time margins razor thin. It doesn't take much to really gum up the works.

Totally non-responsive. Try explaining how negative supply shocks helped some firms increase profits without market power.

Try an economics textbook.

Perhaps you have the title of an economics textbook that contains such an explanation. Please share it because during my long and undistinguished career as a professional economist with a Phd in economics, I’ve read and reviewed many mainstream economic textbooks ranging from intro to graduate theory, and I cannot recall not one that contains such an explanation.

 

[Derec]

Is that the Capitalism version of "God works in mysterious ways"?

The opposite. "God" implies a being with will and intentions. A central planner. Gods and their mysterious ways are more akin to the five year plan of the Central Committee.
The "Invisible Hand" is more akin to the "Blind Watchmaker" of evolution. There is no entity that controls it all. They are both emergent properties from myriads of individual interactions following the laws of nature.

 

[Jimmy Higgins]

That is a rather naive view of capitalism.

 

[laughing dog]

That is a rather naive view of capitalism.

It is when lifted out of its original context.

The phrase first appeared in Adam Smith’s “The Theory of Moral Sentiments” as a metaphor describing the perceived benefits arising from complex interactions among participants motivated by self interest. Markets predate capitalism by centuries and do not require it to function. Smith’s view of human self interest is much more expansive of the more modern obe of the narrow pursuit of profit. His view includes empathy, sympathy, fairness etc…

In fact, in his later and much more reknown “An Inquiry Into the Nature and Causes of the Wealth of Nations”, Smith warns about business men colluding.

 

[bilby]

Markets predate capitalism

Indeed; And capitalism is predatory upon markets. Turnabout is fair play.

 

[Derec]

That is a rather naive view of capitalism.

Not really. It's just pointing out that unlike the "God works in mysterious ways" quip, the reality of the "Invisible Hand" metaphor is similar to the "Blind Watchmaker" metaphor in that both presuppose no central planner of either the economy or evolution.

 

[Derec]

The phrase first appeared in Adam Smith’s “The Theory of Moral Sentiments” as a metaphor describing the perceived benefits arising from complex interactions among participants motivated by self interest.

Just like evolution is driven by complex interactions among living creatures driven by natural selection. Which is why I compared the "Invisible Hand" to the "Blind Watchmaker".

Markets predate capitalism by centuries and do not require it to function.

Of course. Capitalism is reasonably free markets + capital-intensive industry. Hence the name.
We are not going back to a society where manufacturing is driven by small craftsmen making shoes or hand tools. At least not without a major cataclysm and societal collapse. There is no reasonable alternative to capitalism or to markets. There is a possibility that capitalism will evolve into something else, just like capitalism evolved from the prior economic systems, of course. It will still likely be driven by markets and interactions between millions of participants. I do not foresee it moving in a more socialist direction, with its central planning paradigm.

Smith’s view of human self interest is much more expansive of the more modern obe of the narrow pursuit of profit. His view includes empathy, sympathy, fairness etc…

I didn't say anything contrary to that. I was objecting to equating "Invisible Hand" with "God works in mysterious ways".

In fact, in his later and much more reknown “An Inquiry Into the Nature and Causes of the Wealth of Nations”, Smith warns about business men colluding.

Yes. Anti-trust enforcement is very much needed for a healthy capitalist (or any market-based) economy.