[HN Gopher] A profit-price spiral in Germany
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A profit-price spiral in Germany
Author : rustoo
Score : 96 points
Date : 2023-06-12 20:08 UTC (2 hours ago)
(HTM) web link (think.ing.com)
(TXT) w3m dump (think.ing.com)
| archi42 wrote:
| Seems a bit hugged right now...
|
| http://web.archive.org/web/20230612200920/https://think.ing....
| Aunche wrote:
| A "profit-price spiral" is simply not a thing. Even the people
| who use this term never define what exactly is "spiralling."
|
| It seems like certain economists are intent on obfuscating the
| role of expansionary monetary policy on inflation by pointing
| their fingers at "corporate greed", when they are in fact not
| exclusive. Corporations are always greedy, so when they that the
| economy has more money, they're going to do what it takes to
| siphon as much as they can. Sometimes, this means that selling
| more goods and services, which doesn't increase inflation and is
| the desired outcome of monetary expansion. However, due to supply
| problems and closures due to the pandemic, this wasn't possible,
| so corporations increased prices instead.
| zwieback wrote:
| Greedflation, copying what other companies do and preparing for
| expected new supply chain problems all contribute to profit-price
| spirals.
| hansjorg wrote:
| This entire "greedflation" saga is a bit surprising to me.
|
| That economic scholars are pushing hard against "greedflation"
| and for the idea that the main driver of inflation is greedy
| laborers and their excessive wage demands, is as expected.
|
| Until very recently these were the only kind of scholars allowed
| airtime about this topic and their explanations to laymen seemed
| to hinge on very naive ideas about the level of competition in
| various markets.
|
| What happened to make the "greedflation" story more palatable?
| Surely it must be something other than just disproving these
| seemingly ridiculous and ideologically driven ideas about the
| level of competition?
| donmcronald wrote:
| > What happened to make the "greedflation" story more
| palatable?
|
| Maybe it's better communication or more of a willingness by
| people to admit they're struggling and broke. When you talk to
| everyone you know and no one is making any more money than they
| were 3 years ago, but the prices of everything have increase
| substantially, it's not illogical to think there's someone else
| getting all that extra money.
|
| In Canada everyone knows people that work in the resource
| industries. No one doing the actual work is getting paid
| significantly more, so it must be the mill owners, mine owners,
| oil rig owners, etc. that are starting the chain reaction,
| right?
| kranke155 wrote:
| Joseph Stiglitz agrees with greedflation.* He is a Nobel Prize
| winning economist. I believe greedflation is easy to prove -
| huge increase in profit margin without a corresponding increase
| in costs, and public corpo PR focused on "inflation" as an
| excuse. It's easy to prove with data.
|
| IMO there are economists who talk about economics as a
| cult/religion, described by alt-economist Steve Keen as
| "economism". One needs to distinguish between them.
|
| * here is Stiglitz's talk on the subject if you want to hear
| his opinion and corresponding dataset:
| https://youtu.be/4BAsZIHp9HI
| curiousllama wrote:
| I know some (now retired) marketing execs, and they were
| saying "just watch" about greedflation all last year.
|
| "Once there's an excuse to raise prices, you raise them -
| high and fast - until sales fall"
| JimtheCoder wrote:
| "Joseph Stiglitz agrees with greedflation. He is a Nobel
| Prize winning economist"
|
| Personally, I am not forming an opinion until I hear what
| Paul Krugman, another "Nobel Prize" winning economist, has to
| say.
|
| He says many things as well. Big brain on him.
| kranke155 wrote:
| Joseph Stiglitz has a 50 minute presentation on inflation,
| greedflation and monetary theory you can watch here:
| https://youtu.be/4BAsZIHp9HI
|
| Feel free to debunk it.
| Aerroon wrote:
| > _greedflation is easy to prove - huge increase in profit
| margin without a corresponding increase in cost_
|
| But how would the cost of the previous few years (uncertainty
| from covid, war etc) show up in the current price? I doubt
| they have a line item for the risk/hardship the business had
| to go through over the past few years, but it's definitely
| going to have _some_ cost that 's expressed at a later time
| in prices. How would you account for that?
| kranke155 wrote:
| Stiglitz has a talk about this where he discusses exactly
| this.
|
| Can't think of the time though:
| https://youtu.be/4BAsZIHp9HI
| Quarrel wrote:
| Of course there are serious people that also disagree with it
| (I'm pretty onboard fwiw).
|
| "Industries that raised prices more didn't tend to also make
| high profits":
|
| https://twitter.com/Noahpinion/status/1663865153039790081
|
| I can't find the graph now, but I saw a good one showing that
| largely the profits aren't in the companies with workers
| demanding higher wages.
|
| So, like in all things economic, a Nobel Prize isn't going to
| bring consensus.
|
| (and you could easily find Nobel Prize winning economists on
| the other side of Stiglitz- probably most of them are in any
| given topic)
| kranke155 wrote:
| Sure I just think Stiglitz has been more right than wrong
| on virtually everything I've seen him talk about, which
| makes me have a high level of trust on his work.
|
| Here's his talk on the subject:
| https://youtu.be/4BAsZIHp9HI
| Quarrel wrote:
| Yeah, it isn't that mainstream though. I like his take on
| this and largely agree with him.
| engineer_22 wrote:
| Economy shut down for almost 2 years for COVID - that
| productive supply was lost while people continued consuming (at
| record pace). There has not been any real policy adjustment to
| address the imbalance. The rentiers didn't take any of the
| pain, they're trying to pass it all along on the productive
| class in the form of increased financialization of the real
| economy and higher interest rates. It's disturbing
| curiousllama wrote:
| > Until very recently these were the only kind of scholars
| allowed airtime about this topic
|
| I'd gently suggest that there may be some selection bias in
| your news consumption (as there is in mine, too!)
|
| I saw a large number of explanations beyond wage-price spiral,
| on sources as varied as CNBC, The Atlantic, and gen-z-Tik-Tok
| folks.
|
| You may be observing a shift from commentary "pissed about the
| people saying wages = inflation" (because it's false) to
| commentary about "it's actually the execs" (which seems true)
| ghayes wrote:
| I want to point out that the argument has never been "greedy
| laborers" in the pejorative sense. The argument has been that
| laborers need to rationally account for future inflation, which
| itself contributes to inflation.
|
| The reason that corporate profits aren't often mentioned is
| simply that people had expected competition to naturally
| curtail profits, since in a competitive market, manufacturers
| should happily lower prices (a bit) to capture more market
| share and thus more profits. The fact that doesn't seem to be
| happening is why this cycle is interesting and why we are now
| talking about it.
| hansjorg wrote:
| Yes, and that expectation seems either naive or ideologically
| blinkered to me. Especially after so many decades of
| consolidation with antitrust being a thing of the distant
| past.
|
| Seems to me it can't be merely a gathering of facts and
| deliberations that have now made it allowable to talk about a
| profit-price spiral without being heckled or laughed out of
| the room.
|
| It will be interesting to see if this shift in the discourse
| on inflation could precipate a change in the discourse on
| antitrust in the US as well.
| failuser wrote:
| I hate the word "greedflation". Greed is always there,
| reduction in competition and price fixing is not.
| Quarrel wrote:
| Interesting read, good to see information on it from the German
| perspective, as the phenomenon seems to be playing out in most of
| the West.
|
| Weber has been fair vocal about the directionality here:
|
| https://www.newyorker.com/news/persons-of-interest/what-if-w...
|
| With an interesting take on why it is occurring now (contrasting
| coming out of the pandemic & coming out of WW2, where industry
| needs to rejig supply lines, different things are in different
| places profitability wise).
|
| Meanwhile, most of the wage-price spiral talk has been coming
| under a lot of fire, from both the right and left of economics.
| For instance, the Libertarian / right Cato Institute:
|
| https://www.cato.org/commentary/wage-price-spiral-explanatio...
|
| or an Australian thinktank's take:
|
| https://www.theguardian.com/business/2023/feb/24/an-economic...
|
| while the Australian Treasurer says similar things:
|
| https://www.smh.com.au/politics/federal/australians-hit-by-l...
|
| and the IMF struggled to find good evidence of them:
|
| https://www.imf.org/en/Publications/WP/Issues/2022/11/11/Wag...
|
| These critiques have been glad to see, given it seemed everyone
| seemed to want to blame workers in the first instance, when they
| are still doing just a lot of catch up with their household
| inputs.
|
| Of course, even Cost-push inflation itself is poo-pooed as an
| idea by lots of mainstream economists (like Milton Friedman and
| co), so this pressure on greedy companies (which I think is their
| default position) might find a better audience (although Friedman
| would just say, where is the extra quantity of money coming
| from).
|
| The mainstream media seem to throw everyone under the bus as they
| try and write an article about whichever statistical release
| happened on any given day, but I'll take greedy companies over
| greedy workers for today.
| remich wrote:
| The whole wage-price spiral theory is such bunk. The last time
| we in the U.S. saw significant inflation that could be directly
| tied to that was a time when union membership was at a much
| higher % of the workforce, and many unions had clauses in their
| CBAs that _automatically_ triggered wage increases in response
| to inflation.
|
| The economy in the U.S. is in such a different place now,
| falling back to that explanation seems almost like intellectual
| malpractice.
| bboygravity wrote:
| Anything goes to have the public look away from the
| government's insane over-spending. Enabled by central banks.
| roughly wrote:
| The wage-price spiral theory is the sort of thing that would
| lead to a boom in the guillotine supply industry if it were
| more widely known or understood. "Worker wages going up is
| intrinsically bad and should be fought by intentionally
| causing a recession and putting people out of work" is the
| kind of thing economists can say out loud in public because
| there's no such thing as class solidarity outside the
| billionaire class anymore.
| USB5 wrote:
| [dead]
| zwieback wrote:
| This seems like a pretty good take [PDF] from the Kansas City
| Fed:
| https://www.kansascityfed.org/Economic%20Review/documents/93...
| resolutebat wrote:
| The concept of "greedy companies" is IMHO counterproductive. If
| a kid is being greedy, and that's the default state for a young
| child, you tell them to share and eventually they learn to do
| so (well, most of us, anyway) because it's in their best
| interest to do so.
|
| But companies are _explicitly designed from the ground up_ to
| maximize profits at the expense of everything else, to the
| point where they get sued if they don 't maximize shareholder
| value. So of course they're going to be "greedy" and yank up
| prices as much as they can, and telling them to "share" is
| going to accomplish nothing: it's going to need much more
| fundamental reforms to actually change the way they're
| incentivized to operate.
| kwhitefoot wrote:
| > to the point where they get sued if they don't maximize
| shareholder value.
|
| I'm pretty sure that 'maximizing shareholder value' is not a
| requirement for a company. Not even in the US.
|
| > they get sued
|
| I've seen this claim before but no one ever provides a link
| to any cases. So, do they? Are there any easily accessible
| descriptions of such events?
| Quarrel wrote:
| In the US, Director's have a fiduciary duty to the company,
| and in particular a duty of loyalty. The duty of loyalty
| largely means that you must act in the interests of the
| company and its shareholders- this is where I think most
| people get to the 'maximizing shareholder value'.
|
| However, afaik, as long as you act in good faith, and take
| due care, then I don't think there is any case law saying
| that if you decided that a lower profit margin (for
| instance), would be better for the company long term, even
| if some shareholders disagree, that you'd have any issues.
|
| (ie, I think you're correct, it is totally overblown on the
| net that they MUST MAKE MONEY)
| epicureanideal wrote:
| Apple even publicly declared its interest in making its
| products recyclable and told investors who didn't like it
| to "get out of this stock", so it seems like it's possible
| to challenge the pure profit assumption.
| jmyeet wrote:
| This whole story to me is a sobering and depressing tale of just
| how effective propaganda is, even with a relatively well-educated
| and informed audience here on HN. Why do I say that? Because for
| months I've been saying this but typically such comments get
| downvoted into oblivion. So many people even here are seemingly
| unwilling to pause for a few seconds and consider the evidence or
| simply to question the narrative that we need to raise interest
| rates or that it's our only tool for fighting inflation or that
| somehow wages are responsible for inflation.
|
| For the record, none of those things are true but yet so many
| people are conditioned to suck the boot of the capital-owning
| class, perhaps from the mistaken belief that those people are the
| capital-owning class or will be someday. You are not Elon Musk.
| You will never be Elon Musk. Elon Musk doesn't care about you. He
| would melt you down for parts if it meant an uptick in profits.
|
| In the 70s, with the oil price shock we had Nixon, a Republican,
| quite effectively tackle inflation with wage-price freezes. We've
| had some countries tackle greedflation with a windfall profits
| tax.
|
| Personally, I'd be happy enough with a mechanism that as long as
| inflation is above 4%, the corporate tax rate is 80% and all
| share buybacks and dividends are suspended.
|
| The capital-owning class (who own both parties in the US
| political system) have effectively decimated any form of labor
| solidarity so people vote against their own interests. Who
| doesn't vote against their interests? The capital-owning class.
| rtb wrote:
| "greed"? The force that pushes back on corporate greed should be
| competition. The problem is the modern trend of consolidation,
| monopolisation and lack of proper competition.
| [deleted]
| Glyptodon wrote:
| Why compete when we all own index funds? Just use proxies to
| communicate and sychronize about "industry and sector costs and
| margins" and take your share. Maybe work a little on cost
| reductions to look good, and don't rock the boat: So long as
| investors can be exposed to whole markets and industries
| without caring about individual winners, there's really only
| one owner of the publicly traded participents.
|
| Or is that an exaggeration?
| im3w1l wrote:
| Yes. It's something that could happen, but I don't think it
| already has. The CEO is usually more exposed to their own
| company than any other.
| Aerroon wrote:
| Another factor is the consumers. They settle on a brand and
| refuse to try alternatives. Often for good reasons, but it
| still reduces competition.
| wpwpwpw wrote:
| it's not a bug, it's a feature.
| https://en.wikipedia.org/wiki/Capital_accumulation#Over-accu...
| ivan_gammel wrote:
| Property and construction are the most distorted markets in a
| half of the world and this article is yet another proof of that.
| Our society as a whole would actually benefit if state
| intervention would make property market unattractive for
| investors by oversupply: government could invest 50-100BEUR in
| creating non-profit construction verticals that will oversaturate
| market. The next logical step would be to allow some of the
| constructed apartments to be privatized by tenants at low cost:
| maybe not by everyone, but only by those who has a socially
| important job (police, firefighters, healthcare and social
| workers, teachers) and majority of difficult problems that
| government has to deal with would go away. Yes, a lot of people
| who bought expensive properties may forget about any returns,
| there could be some margin calls and banking system won't be
| happy. But this would be a necessary sacrifice for a healthier
| economy in which money go elsewhere.
| davidktr wrote:
| You obviously have not been around non-profit, government run
| entities. The waste they create, the inefficiency inherent in
| such enterprises is terrifying.
|
| Yesterday I looked at a huge box full of perfectly fine laptops
| and monitors we will scrape because selling them or even giving
| them away would be inconvenient.
|
| At the same time, I have to pay parts of a business trip out of
| my own pocket because I chose not to fly but to take the train.
| The best part: My trip was CHEAPER than flying. But it was out
| of regulation, so tough luck.
| TeMPOraL wrote:
| To be honest - and this applies to every such story I've
| heard - it's exactly the same in large corporations.
|
| Turns out, it's really not about government vs. free market.
| It's about _size_. The larger an org is, the more bureaucracy
| it has and the more stakeholders are involved. Eventually,
| you get this weird inversion of priorities that seems to defy
| common sense. But it 's all locally rational - a corporation
| or a government both can trash a shipping container full of
| brand new computers, because doing it is _cheaper than
| selling them_ , or than any other alternative, once the (real
| or perceived) process costs get accounted for. Or, maybe it's
| globally optimal to sell them, but since all the gains go to
| organization as a whole, while all the risk (financial,
| legal, operational) is concentrated on whoever coordinates
| the sale, no one is suicidal enough to try.
| Avshalom wrote:
| have you ever been around a for-profit, privately run entity?
| creato wrote:
| Your experience at a big company in those two scenarios will
| likely be no different.
| thfuran wrote:
| Whereas at a company, the equipment would be destroyed
| because it checks a box on some asinine security requirement.
| singleshot_ wrote:
| Hey, if my money and property is "a necessary sacrifice" then
| who am I to argue? Come, live in my house; take some of my
| food. Do you need clothing? A car? I am at your disposal.
| Together, we can build a better economy (for you).
| rowanG077 wrote:
| Ah yes. The classic straw man in the wild.
| colonCapitalDee wrote:
| Not a strawman. Direct quote from the parent: "Yes, a lot
| of people who bought expensive properties may forget about
| any returns, there could be some margin calls and banking
| system won't be happy."
| rowanG077 wrote:
| Saying housing needs to stop being viewed as an
| investment, and as such will be devalued, is not even
| remotely the same thing as saying, and I quote the person
| I replied to here: "Come, live in my house; take some of
| my food. Do you need clothing? A car? I am at your
| disposal. Together, we can build a better economy (for
| you)."
| tick_tock_tick wrote:
| > state intervention would make property market unattractive
|
| State intervention is why they are attractive in the first
| place.....
| amelius wrote:
| One can dream ...
| ethbr0 wrote:
| Non-profit construction firms with nationally guaranteed access
| to redevelop land and waive local zoning, subject only to
| nationally-set conditions, would help a lot of cities.
|
| The enemy is the same as it's always been: landowners.
|
| Set a few KPIs (housing profit metrics, supply/demand, price vs
| national average) and trigger forced non-profit supply if they
| exceed thresholds.
|
| The problem now is there's an unbalanced equation in favor of
| homeowners. (Said as an owner and landlord)
| LunaSea wrote:
| And why would social workers be more deserving than bakers?
| uoaei wrote:
| Is that some kind of joke? It doesn't seem to be a question
| in good faith at any rate.
| hackerlight wrote:
| Run this thought experiment. In one world, every banker
| disappears overnight and banking becomes illegal, in the
| other, every social worker disappears overnight and social
| work becomes illegal. Which scenario leads to a worse world
| to live in? Which scenario causes more human suffering?
| Quarrel wrote:
| ok, but they were talking about bakers, not bankers..
| catmanjan wrote:
| They meant jobs important to society, bakers would probably
| be near the top of that list
| lotsofpulp wrote:
| Why would bakers be near the top of that list? Isn't
| diabetes and obesity the top health problem around the
| world?
|
| The point of my comment is to show how ridiculous it is to
| try and rank "social importantness" of jobs.
| wyre wrote:
| Bread has been a staple in most diets for millennia
| crazygringo wrote:
| There's no reason the _government_ needs to invest in it.
|
| The market will take care of it on its own as long as
| regulations allow it. The government just has to ensure zoning
| allows it, height restrictions are relaxed, environmental
| reviews are sped up, and so forth.
|
| Of course, all those restrictions are there for certain
| reasons, which is why getting the balance right between those
| and new construction is so hard.
|
| Edit: Also, the idea of prioritizing _housing_ for "socially
| important" jobs is backwards. Why single out housing? If we
| truly value teachers, just _pay them more in the first place_.
| That way they can choose whether they want to put it towards a
| nicer home or fancy summer camps for the kids or something
| else.
| jpollock wrote:
| Instead of trying to define "socially important job", how
| about...
|
| If government is having trouble hiring people for roles they
| can either increase the wages paid, or enter into the housing
| market and include "free housing" as a taxable benefit for
| those roles. You know, like governments do for the military and
| other foreign service staff.
|
| However, maybe I'm just salty because I've been waiting for 6+
| months (with no eta) for permission from the San Jose City
| Council to do a renovation.
| hyperthesis wrote:
| But those people who bought expensive properties are the ones
| with the power to change the situation.
| potatototoo99 wrote:
| What? Only "socially important jobs" could buy the cheaper
| apartments? What the hell
| est31 wrote:
| For prices to go down, it doesn't really matter who gets to
| live in these apartments, as long as enough demand is taken
| off the market.
|
| And usually, with few exceptions, socially acceptable jobs
| are the ones which pay little compared to the effort they
| require, and also compared to the (non-monetary) value they
| bring to society. You also want these people in your city
| because sure it's great that you have tech workers, lawyers
| and bankers, but who is going to be in the hospitals?
| debesyla wrote:
| Why not? It makes sense - not every job is equal and some are
| both important and usually not paid enough.
|
| Society or your local town won't collapse if there's not
| enough web developers but it may do if it lacks firefighters.
| splix wrote:
| That would be a payment, just not with money, right? So why
| it's better than just paying this money directly and
| letting the person decide, rather than introducing an extra
| step by putting the money into a development and then
| giving the property instead? The direct payment looks more
| efficient to me.
| debesyla wrote:
| That could be true indeed. I am just arguing in the
| scenario of "what if we build lots of flats", hah!
|
| I do wonder how did similar scenarios worked out
| historically?
| est31 wrote:
| If you have a thousand people competing for 700
| apartments, prices will adjust until 300 are priced out
| of the apartments. Giving the 200 of those people with
| socially recognized jobs enough money to not be priced
| out any more will still mean that 200 will be priced out.
| In the market this means that the rents will just
| increase. The solution is to build 300 more apartments,
| not to give people more money to compete for the small
| number of apartments.
| gloryjulio wrote:
| This is the Singapore model. Tbf I think it's fine to help
| most of the people to have places to live in
| polio wrote:
| Yes? Why is that hard to accept? Jobs with positive
| externalities are by definition undercompensated.
| sebzim4500 wrote:
| Why don't you just pay them more? Seems easier than setting
| up a social credit system.
| thfuran wrote:
| >government could invest 50-100BEUR in creating non-profit
| construction verticals that will oversaturate market.
|
| Given how our infrastructure projects tend to go, I expect that
| level of funding would produce a single midrise apartment
| complex in Boston with construction completing in 2060.
| singleshot_ wrote:
| I'd be kind of surprised if the building funded by the German
| government in euros ended up being built outside of Germany,
| but you know what they say: location, location, location.
| thfuran wrote:
| Well, yes. I mean if the US were to udertake something
| similar to the proposal.
| golemiprague wrote:
| [dead]
| donmcronald wrote:
| I think this (non-market housing) [1] used to be a more
| prominent thing in Canada. Basically we used to have a parallel
| system that was based on fair value instead of price gouging.
| Once that was lobbied out of existence things started going
| down hill.
|
| 1. https://vancouversun.com/homes/government-support-crucial-
| to...
| hcks wrote:
| The idea of "greedflation" is strange, it seems to only be
| understandable if you start with the (unconscious?) assumption
| that workers cannot be the losers of inflation.
| bash-j wrote:
| These large cost increases have been great for businesses. If
| your company buys a widget for $10 and sells it for $50 and the
| cost goes up 20%, you can tell your customers our costs have gone
| up 20% and we can't afford not to pass on the increases, etc. The
| thing is the business is only paying $2 more, but the customer is
| paying $10 more. Plus we also have businesses like supermarkets
| that saw a huge increase in demand during the COVID restrictions,
| where people couldn't travel, eat out, go to concerts. But even
| after the record breaking year due to a non repeatable event,
| they still expect to grow on top of that. When demand falls, the
| only way to keep or grow your revenue is to increase prices.
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