Katie Porter - What Is Causing Inflation?

[Swammerdami]

Correlation does not imply causation.

What’s bizarre about the “inflation is caused by corporate profits” mantra is how new it is. Cannot recall a time prior when anyone thought that. Inflation had been under control for decades, times during which oil companies and others had huge profits. I guess when the ruling party can’t defend its terrible governance it’s gotta conjure new bullshit.

Perhaps the "bizarre" comments are motivated by — gasp! — the ACTUAL DATA. Here are corporate profits as a percentage of GDP. They barely nosed above 8% during Carter's term (was this also corporations taking advantage of inflation?), and averaged less than 6% during the Clinton Boom. But then profits soared during the first Bush-43 recession and in the pro-bank aftermath of his second, great recession. They retreated to 9% by 2020 but during the recent inflationary epoch have soared all the way to 12% and set a record.

At the risk of stating the obvious, the total pie will always be 100% exactly. The bigger share of the pie that goes to corporate profits, the smaller the cut for wages and salaries.

 

[Loren Pechtel]

At the risk of stating the obvious, the total pie will always be 100% exactly. The bigger share of the pie that goes to corporate profits, the smaller the cut for wages and salaries.

The problem with this is the size of the pie is not at all constant.

 

[bilby]

At the risk of stating the obvious, the total pie will always be 100% exactly. The bigger share of the pie that goes to corporate profits, the smaller the cut for wages and salaries.

The problem with this is the size of the pie is not at all constant.

But it's always 100%, right? 10% of the total is alway a tenth of the total, no matter how much the size of the pie might vary.

The benefit of looking at a percentage is that it automagically adjusts for changes in the absolute size of the pie.

 

[Swammerdami]

At the risk of stating the obvious, the total pie will always be 100% exactly. The bigger share of the pie that goes to corporate profits, the smaller the cut for wages and salaries.

The problem with this is the size of the pie is not at all constant.

I'm GUESSING that your point is that higher corporate profits MIGHT increase the pie. FRED has hundreds of data series; let's see what it has to say.
This is the same graph in blue, but with percentage change to Real GDP superimposed in red. (Note also that, with the exception of the 2008 crisis, corporate profit's share of the pie was hardly affected by recession — although in three cases we see rising profits just PRIOR to recession !)

From 1984 to 2003, excepting two smallish recessions, GDP grew consistently DESPITE that corporate profits were ONLY about 5% of the pie. As corporate profits rose after 2003, to 10% and higher, GDP growth FELL.

Satisfied?

Instead of Real GDP we can use Real GDP per capita. The graph is rather similar:

 

[Loren Pechtel]

At the risk of stating the obvious, the total pie will always be 100% exactly. The bigger share of the pie that goes to corporate profits, the smaller the cut for wages and salaries.

The problem with this is the size of the pie is not at all constant.

I'm GUESSING that your point is that higher corporate profits MIGHT increase the pie. FRED has hundreds of data series; let's see what it has to say.
This is the same graph in blue, but with percentage change to Real GDP superimposed in red. (Note also that, with the exception of the 2008 crisis, corporate profit's share of the pie was hardly affected by recession — although in three cases we see rising profits just PRIOR to recession !)

That's one thing, but there's also outside factors that can mess with it. We just saw big supply chain shocks, of course corporate profits went up.

From 1984 to 2003, excepting two smallish recessions, GDP grew consistently DESPITE that corporate profits were ONLY about 5% of the pie. As corporate profits rose after 2003, to 10% and higher, GDP growth FELL.

Satisfied?

Look at your own graph! There's a substantial relationship between GDP growth and the change to corporate profits. If the system can do it plot that with the derivative rather than the actual value. (Note that I'm not saying it's causative--it's likely both are being influenced by a third factor.)

 

[ZiprHead]

Wow, the corporate apologia here makes me want to As if their massive lobbying isn't enough.

 

[ZiprHead]

 

[Gospel]

Martin Shkreli was a better man than that dude, as he was at least honest about exploiting his position for profit.

 

[Swammerdami]

First, a reminder to everyone — especially Derec — that this piece of economic research is what is under discussion. Good economic thinking in the present-day is NOT hand-waving from intuition or philosophy to reach a desired conclusion, but rather is based on statistical analysis of real-world data.

In our analysis, we find that firms increased their markups substantially in 2021, both to their highest level and with the largest single-year increase since 1955. Firm profitability, both before and after taxes, also increased to its highest levels. This sharp annual increase in markups was driven to a large degree by firms with markups in the top 25th percentile of the distribution. Compared to recent decades, this was also driven by shifts across firms and across industries.

Regressing firm-level changes, we found that, adjusting for size, there’s a significant relationship between a firm’s average markup before the pandemic and the amount the firm has increased the markup since. A 10 percent increase in firms’ pre-pandemic size-adjusted markups is associated with an increase between 1.6 and 2.7 in their markups in 2021. In addition to showing that both demand and supply factors are behind the increases in markups, this evidence suggests that firms facing less competition before the pandemic have been able to take advantage of the one-time demand-and-supply shifts to increase their markups since, suggesting market power to be a third explanatory factor in inflation in 2021.

Am I certain these two distinguished economists' analysis is fully correct? No. But it is disingenuous and an intellectual self-indictment to pretend one is arguing against an Alternet opinion, rather than the research of these distinguished economists. I'm pretty sure Derec didn't even read the paper.

I'm GUESSING that your point is that higher corporate profits MIGHT increase the pie. FRED has hundreds of data series; let's see what it has to say.
This is the same graph in blue, but with percentage change to Real GDP superimposed in red. (Note also that, with the exception of the 2008 crisis, corporate profit's share of the pie was hardly affected by recession — although in three cases we see rising profits just PRIOR to recession !)

That's one thing, but there's also outside factors that can mess with it. We just saw big supply chain shocks, of course corporate profits went up.

Why did corporate profits of course go up? I do not understand this.

From 1984 to 2003, excepting two smallish recessions, GDP grew consistently DESPITE that corporate profits were ONLY about 5% of the pie. As corporate profits rose after 2003, to 10% and higher, GDP growth FELL.

Look at your own graph! There's a substantial relationship between GDP growth and the change to corporate profits. If the system can do it plot that with the derivative rather than the actual value. (Note that I'm not saying it's causative--it's likely both are being influenced by a third factor.)

Can you detail your hypothesis before I attempt such a graph?
(Anyway, I encourage others to make their own graphs. That FRED facility is rather easy to use after some practice.)

I look at the graphs and see that high corporate profits appear to have NEGATIVE correlation with GDP growth. You don't see that?

 

[ZiprHead]

We just saw big supply chain shocks, of course corporate profits went up.

I don't see how one follows the other. If a company is having trouble getting stock to sell, their profits should go down.

 

[Loren Pechtel]

We just saw big supply chain shocks, of course corporate profits went up.

I don't see how one follows the other. If a company is having trouble getting stock to sell, their profits should go down.

Supply chain shocks = not enough produced. Supply drops, of course the price goes up.

 

[lpetrich]

PPG's rivals might see that as an opportunity to start a price war, but they may decide that the lost earnings per can of paint are a price too high to pay for increased market share.

 

[lpetrich]

Katie Porter on Twitter: "For every extra $1 you’re paying due to inflation, 54¢ is going right into the pockets of big corporations. Wall Street is price gouging families to earn sky-high profits, jeopardizing our entire economy in the process." / Twitter

with response
Mark A Campbell on Twitter: "@katieporteroc I am a American citizen living abroad, I see inflation at 7% here only. The oligarchs here were not aloud price gouge. A wind fall profit tax is needed. That will never happen if Republicans are in charge." / Twitter
and
Debbie Tremel on Twitter: "@katieporteroc And why does no one say it's intentional? Happening now to make Dems look bad. It's not just about profit, it's about getting Republicans control so they can get/keep their tax breaks, reduce regulations and insure their interests are safeguarded. Greed now and for their future." / Twitter
Seems like a conspiracy theory, but I wouldn't be surprised.

 

[TV and credit cards]

Katie Porter on Twitter: "For every extra $1 you’re paying due to inflation, 54¢ is going right into the pockets of big corporations. Wall Street is price gouging families to earn sky-high profits, jeopardizing our entire economy in the process." / Twitter

with response
Mark A Campbell on Twitter: "@katieporteroc I am a American citizen living abroad, I see inflation at 7% here only. The oligarchs here were not aloud price gouge. A wind fall profit tax is needed. That will never happen if Republicans are in charge." / Twitter
and
Debbie Tremel on Twitter: "@katieporteroc And why does no one say it's intentional? Happening now to make Dems look bad. It's not just about profit, it's about getting Republicans control so they can get/keep their tax breaks, reduce regulations and insure their interests are safeguarded. Greed now and for their future." / Twitter
Seems like a conspiracy theory, but I wouldn't be surprised.

Let’s not kid ourselves. A windfall profit tax won’t happen with Democrats in charge either. Ask Manchin or Sinema how they feel about it. And were it not Manchin or Sinema, some other moderate Dems would step up to put the kibosh on it.
Same old same old by people who were either born yesterday or have spent a lifetime deluding themselves.

 

[Cheerful Charlie]

Katie Porter rides again.

'Ripped off by Wall Street': Katie Porter unleashes on GOP for ignoring fundamental principle of capitalism

On Wednesday's edition of MSNBC's "The Beat," Rep. Katie Porter (D-CA) tore into big businesses for gouging consumers to boost profits while hiding behind the shield of global inflation.This comes shortly after Porter and an economic think tank analyst concurred at a House hearing that data...

www.rawstory.com

 

[TV and credit cards]

You're not going to get anywhere with this Katie. You'll never get enough of Congress to pass anything meaningful. But go on. Beat your head against the wall. You're just going to end up in the Congressional Concussion Protocol with Elizabeth Warren or worse, in a rubber room with babbling Bernie.

 

[Jimmy Higgins]

At the risk of stating the obvious, the total pie will always be 100% exactly. The bigger share of the pie that goes to corporate profits, the smaller the cut for wages and salaries.

The problem with this is the size of the pie is not at all constant.

Not really. The issue is that expected profits are higher than they used to be. Back when I started working 25 years ago profits in our division greater than 4 or 5% were considered very high and crazy. Now the aim is 8 or 10%. The increase we saw post recession was caused by a smaller workforce being squeezed to death. As the US got out of the recession, corporations used the reduced workforce and drove higher profits off the effort of fewer people. Management looked like geniuses and the workers were squeezed very hard.

 

[Swammerdami]

I don't see a thread devoted to economic predictions, so will post this here.

Reported in Financial Times:

Elliott Management, one of the world's biggest and most influential hedge funds warns that the world is "on the path to hyperinflation [which could lead to] global societal collapse and civil or international strife" and could be heading towards its worst financial crisis since the second world war. While such an outcome is not certain, this is currently the direction that the world was headed, it added.

Elliott, which is up 6.4 per cent in 2022 and which has only lost money in two calendar years since launch in 1977, pointed to a handful of areas of potential stress that could accelerate market falls. It highlighted banks' losses on bridge financing, potential markdowns of collateralised loan obligations and leveraged private equity as areas of potential risk for markets.
...
An "extraordinary" set of financial extremes that come as the era of cheap money draws to a close "[has] made possible a set of outcomes that would be at or beyond the boundaries of the entire post-WWII period" ...
... The fund manager laid much of the blame for the looming crisis on central bank policymakers, which it said had been "dishonest" about the causes of high inflation by blaming it on supply chain bottlenecks in the wake of the pandemic, rather than on ultra-loose monetary policy put in place at the height of the coronavirus crisis in 2020....
"[There are so many] frightening and seriously negative possibilities [that it is hard not to think that] a seriously adverse unwind of the everything bubble [is coming]."

 

[ZiprHead]

 

[Gospel]

All this talk about wanting small government and low to no taxes yet these Rich idiots won't put up so the government can shut up. I mean if they took care of the American people the American people wouldn't be looking to the government to do it. Duh! Sharing those profits in the form of above slandered of living wages and awesome healthcare benefits would have most the population ready and willing to accept little government interference and crown them Gods. Just goes to show that the richest truly aren't the brightest.