So, I know we have a general topic about economics, but I was curious about just talking about prices going up on goods in the US.
My understanding is that Covid-19 pushed some of it, but that companies are making decent profits, so it seems to me that companies are raising prices faster and higher then there was call for, and then blaming it on Covid-19 or wage growth.
If that is the case, what is the mechanism for fighting this? In the past, it would have been competing companies undercutting the competition, but with the consolidation of so many companies, is that possible? There are only 4 major meat packing firms in the US. Hospitals are buying up local competition, giving them more control over wages. I know Biden is looking into fostering competition, but can anything actually be done in the short term?
And what should of areas are likely to see most price rises because of a lack of competition?
Usually the tool used to fight inflation is raising interest rates. This hurts economic growth.
I’m actually a bit worried about stagflation returning, which is basically when things are in major bad shape , like the late 70s.
Some of the price-gouging now I suspect is corps trying to punch down on consumers to recoup their losses during the pandemic. Things could be done about that, but more at the state level.
That would be the case if the problem was costs, but that isn’t the case currently, at least not entirely.
If rising costs were causing a squeeze, you would see companies losing money or at least their profit margins get reduced. Instead, you are seeing companies raise prices, but also ha e record profits.
That stems a lack of competition, the usual mechanism for unjust greed.
You see the same thing happen with gas prices. The price of barrels of oil have come down, but the price remains high simple because there are fewer incentives to reduce the price of gas overall.
Fully agreed here. There are competition issues as well.
A lot of the flaws of Reagan have come home to roost this decade.
That said, the cost of converting oil to gas went up due to both inflation and covid, that’s a bit of the price increase as well.
You might think the problem is too much money, but I think the real issue is too few goods. The pandemic has closed down factories, ports, and almost all bars and restaurants for at least some of the time.
So, we have had fewer goods produced then usual, and at the same time, many of the avenues that we usually spend money (bars, restaurant, movie theaters, sport events and more) have been closed off.
The end result is, even with the same amount of money, we have fewer places to spend it.
Now, if the issue is that there is too much money in the system, we do have a system to siphon off some of that extra cash directly. Raise taxes. It’s really that easy, if you think that is the problem.
In any case, if the profit sheets of a lot of companies are something to go off of, I think that there are other causes to inflation, such as market consolidation.
There’s a few things in the supply chain thread too. (cause not everyone cares about long discussions on every US thing)
But, yeah, it’s mostly not demand driven (from 1200$? from renewed labor power? lol), but also mostly not a supply issue, with plenty of CEOs having been pretty explicit about it: they rose prices because people expect everything to rise together, just like now they expect rises because oil rose.
Tax and regulate gouging and it will go away, because what’s the point then? Or raise rates and crash the economy, and you’ll have a few million more unemployed having less demand and fixing part of it, I guess. While increasing the deficit and being hounded to take more money away from the private sector.
It appears that there’s a fair amount of both short supply and increased demand going on. Shortages from the pandemic are definitely real (reducing supply), which drives up prices on its own. But, as you rightly point out, consumers have (for the last two years) reduced their consumption of a lot of different kinds of goods – typically the ones that were either not available (due to supply chain issues) or which weren’t safe (due to the pandemic).
Now you have a lot of pent up demand which is being expressed by consumers, and that is effectively increased demand – also leading to higher prices. On the policy level, the stimulus helped fuel that increase in demand, since people have more money than they would have had otherwise to (in Friedman’s words) “chase” those goods and services that they haven’t been buying for the last two years. Setting aside all the competitiveness issues (which I agree are a real thing), any time demand goes up, prices will also go up – and, in theory, this will eventually drive up supply, which will then bring prices back down.
In theory, anyway.
And you’re right, taxing the public at a high level would definitely reduce some of the demand side, and (at least in theory) the supply side of things should even itself out once we get past the pandemic related issues.
As a middle class dude living in a middle class suburb, I’m surprised at how many people are just consuming like crazy, prices be damned. Every third driveway seems to have a new car in the last six months (despite prices being bonkers) and people are planning elaborate (and expensive) vacations just to get out of the house they’ve been trapped in for two years. I think all that will calm down, eventually, but it does seem like people just want to get new stuff/have new experiences, which is the essence of the Friedman quote about too much money chasing too few goods/services.
I know you specified US only, but inflation is hitting everywhere in the western world kind of simultaneously, though to somewhat different levels. France, for ex., is up 4%, about 5% in Germany, 6% in the UK, 7% in Spain, to about 3.5% in Australia. Japan’s inflation rate is about… 0%, apparently because among many reasons, such as deflationary economics for decades, Japanese consumers just refuse to by goods at prices or rates that differ from the past experiences.
I think that the biggest factor in inflation is supply chain woes. Rising wages is part of it, but right now the supply chain issues are just killing companies. The cost to ship goods has risen to insane levels.
As infrastructure gets better, and port backlogs get through, things will ease. And competition will start to rise again. Right now all companies are in the same supply constricted situation. it is difficult to compete on prices while competing for raw goods to sell in the first place.
The biggest issue with the supply chain is that most companies have moved to a lean-thinking style of supply chain, with low inventory kept to reduce the amount of product sitting around waiting to be sold. The pandemic came and threw everything out of whack, and suddenly everyone ran out of the lean inventory (closing factories, calling in sick, change in consumer purchasing etc)
Time will heal this, along with raising interest rates.
I get what you are saying @JonRowe, but does time solve the current problem of incredible corporate consolidation?
With only 4 large meat packing companies, as an example that President Biden brought up, is there much downward pressure to reduce prices at all after the Pandemic is over?
Same for Chip production, Food and Beverage production, Game Design, and the like.
Time will solve some of the trouble as we sort out logistics, but I fear without an entry ramp for new players into multiple markets, that some of the increases in prices are here to stay without action outside action.
My understanding is that Biden is working on some of these issues through government procurement, but I doubt we’ll see any effect of it until he is out of office.
I think that it might slow down price decreases. But 4 companies will still compete with each other. Price fixing is illegal. (but will probably still happen)
Startups happen all of the time, large mega-corporations often have a lot of issues smaller agile start-ups can exploit. Whether it be red tape, excess cost through middle management, etc.
I guess I am not that worried about the corporate consolidation as one of the reasons inflation will stick around. The cause is 100% the pandemic, a once in a lifetime event that upset the entire economy. I find it hard to be convinced that a once in a lifetime event will change the status quo once things get back to normal.
I guess we will see. It is important to continue stopping companies from forming monopolies. But it is difficult in the U.S. as we are now having to compete with foreign competitors that do not play by the exact same rules.
It is hard to tell right now while we are in it, but I typically think that making permanent solutions to temporary problems is not always the smartest move.
Issues like this appear to be easing a bit. Port backlogs broke records last fall, which squeezed the crap out of companies.
I agree that when a lot of the issues of the pandemic will be taken care of, much, maybe even most things will be taken care of, but we’ve had 40 or so years of sopme pretty bad policies when it comes to corporate consolidation.
Oligopolies can easily collude, even if it’s not overt. Think two competing gas stations across the street from each other. If they want to they can easily price fix the cost of gas at that corner by matching each other’s prices.
This is heavily dependent on industry. How much start up capital is required, what economies of scale exist, costs of distribution, etc. Some industries, such as power generation and distribution, are so capital startup intensive that it would be practically impossible for a startup to compete. Its why that is a heavily regulated industry. Others like restaurants do have capital outlays, yes, but also are light enough that new entrants into the market are easy to bring. In part because it is a hyper local industry, and aside from franchising, there isn’t a ton of national economies of scale possible. So entrenched companies have much lower baked in advantages.
Meat packing tends more towards the power side of things. Large capital outlays, huge economies of scale. A startup, should it even be able to get established, would be completely unable to compete on price. Even if the established companies are profiteering on, which they probably are, the cost to enter the market is so high, the potential for competing on differentiation so low, and economies of scale so significant, that the level of price gouging needed to make it viable to enter the market is prohibitively high.
