In 2020-2022 my input costs (housing, food) went up ~20%, so I also needed to increase the price of my labor. This means negotiating a promotion or switching jobs, which is a lot of effort. And since I'm putting in that effort anyways, I might as well optimize it and try to get every extra dime, which ended being more than a 20% increase.
In non-inflationary periods, it's not even worth the effort and stress to optimize my salary like this.
I imagine the same was true for a lot of businesses in the supply chain. If you're some SAAS company, raising prices 20% requires renegotiating contracts, dealing with angry clients, etc. So if you're going to do that anyways you might as well try to raise it even more.
The reason companies can't normally just jack up their prices to sky high levels is because even if consumers can afford the increase they will feel cheated and refuse to pay or they will switch to lower priced alternatives who are happy to steal their competitor's business. That's why normally companies will usually increment their prices slowly over time. After a while they might lose the old folks who remember when the $1.50 candy bar only used to cost 50 cents, but to the younger generation the price was always at least $1 and they'll keep forking over more and more money for many years.
What went wrong this time was the pandemic. Initially, there were genuine supply chain issues that made goods scarce. Companies told consumers that their prices were higher and their goods were hard to find, but that it couldn't be helped because of the completely unprecedented circumstances we were all dealing with. "We're all in this together!" corporations told us, and so while nobody was happy about the increasing costs, we were understanding and forked over the extra cash. Things were difficult for everyone after all. We knew some companies were having a hard time.
As the pandemic went on people's stress and anxiety levels increased. With their routines and lives disrupted, and their options limited, people were desperate for some familiar comforts. For the sake of their mental health they were willing to go into debt to get them if necessary. Because of this, people were willing to spend more to get what they wanted (and in some cases needed). Household debt hit record highs at the end of 2021. Companies realized this and took full advantage. Price gouging and colluding out of pure greed, while still assuring consumers that "We're all in this together! Don't blame us! Pandemic! Supply Chains!" They kept jacking up prices and complaining to the public about the supply shortages while at the same time there was a "warehouses crisis" because they were sitting on massive amounts of unsold goods. They could have lowered prices to sell off surplus stock, but they just kept jacking them up while building new warehouses to store their inventory. They could afford it after all since they were making money hand over fist. Warehouse construction was the only sector of the construction industry that was booming at the end of 2021.
Then word started getting out that companies were lying to us. There were headlines reporting massive corporate profits while many consumers were struggling to pay their bills and keep a roof over their heads. Some industries got more attention than others (https://www.reuters.com/business/meat-packers-profit-margins...), but many people were starting to realize that they'd been being taken advantage of when suddenly the next major excuse hit.
The news was full of reporting on massive inflation, that prices were rising and how it was "hurting" businesses. Consumers again, were primed to expect increased prices due to something outside of the control of the companies. "We know prices are high right now, but it's not our fault, it's this damn inflation!" the corporations insisted. "We're all in this together!" they said. That line of bullshit actually worked again on a lot of people. Even here on HN you could find people defending the companies and insisting that it wasn't greed.
Because supply chain issues and "inflation" hit everyone and companies colluded together to rise their prices, the prices of all goods by all companies rose at the same time and so even the people who didn't buy the lies about companies being powerless against inflation were left with zero lower priced alternatives to switch to. Every product from every company was more expensive.
This isn't the first time companies were able to use excuses to jack up prices unfairly. Years ago, when gas prices soared to record highs many companies raised their prices and told the public "We can't help it! Don't blame us! Gas prices are costing us so much more now! We're all in this together!", but when gas prices finally fell they didn't lower their prices back down. They instead increased their use of tricks like shrinkflation to fool customers into thinking prices weren't as high.
That's a question that has interested me. I came up with:
We (the 99.9%) are not poor enough. We can still afford it "in some sense" and to some degree". The poorest, say, 30% shield the rest of a society from paying too much.
p.s. If you know this idea has some academic name, please lemme know!
It's not necessarily "the poorest [...] 30%". It's the marginal consumers who's willing to comparison shop and put in the legwork. They keep prices down for everyone else, by threatening to switch to the other store if one store decides to get too greedy. True, being poor might be correlated with putting the legwork into saving money, but wealth isn't the definite factor.
>p.s. If you know this idea has some academic name, please lemme know!
sounds like https://en.wikipedia.org/wiki/Economic_surplus
aka, it's too difficult to price discrinimate common essentials (lord knows they try - look at how much labeling of "organic" and "natural" foods there are!).
This combined with hyper-optimized inventory chains.
Even if there is a competitor, the max they could absorb would be a 10% increase in demand (look at what happened in toilet paper during Covid).
So, even if I comparison shop and buy from a different supplier, only 10% max will benefit and then the new supplier simply can't add anybody else--everybody left has to go to back to the inflated price supplier.
And that's only if some upstream supplier isn't a monopoly supplying the whole sector.
I think you need significantly more competitors so that there is less chance for "accidental collusion"
What I really think will get be down-voted around here, but I think there should be state run (nonprofit) (but run at cost) offering in every market, and if the for profit companies can't compete against inefficient government run businesses then they should not be in business themselves.
We should leverage our collective power to set a baseline performance metric.
For example: Australia Post runs at a small profit rather than at a cost to taxpayers.
I would think shipping to Australia is something any outside business would avoid given the cost of it being in BFE. So naturally a solution was implemented to keep its citizens happy. If it was as cheap to ship to Australia as it is to ship between borders, Australia Post wouldnt exist.
They are all hard problems, and its unlikely we would make the right decisions every time.
But I think its an interesting thought experiment.
In a way this would be like cap the % profits. And just like capping the profits… you cant do that because why should the super effective companies get punished and not gain massive profit!
There is a contradiction in our system - if the companies drive the prices down they digg their own grave. And since they have to grow not stagnate then at some point they need to stop driving prices down and also more and more fuck people over.
So it is greed. Imagine companies that wouldnt grow.
But it’s easier to blame greedy corporate CEO than your own failed monetary policy.
From the article:
"Among the companies that increased their profits most from the pre-pandemic average were:
ExxonMobil: profits of £15bn increased to £53bn Shell: £16bn up to £44bn"
Increasing prices in line with inflation - direct higher costs - isn't what the research is calling out - it's the excesses.
This seems to me to be a simple adjustment. The oil company's profits went way down the quarter the pandemic started, due to a sudden demand shift. Now they're going above average due to the sudden demand shift in the other direction.
Oil is also weird since it's heavily determined by geopolitics. The Ukraine war must have had an impact but I haven't looked into it
Excellent synopsis.
Price discovery is not perfect and not instantaneous. And as you said, there is a constant upward pressure on prices as a part of profit seeking. It’s the downward pressure of competition that keeps it in check.
Inflation disrupts this equilibrium.
The cause of the disruption is where the focus should be.
It definitely is interesting, the issue is that the current inflation is causing a wealth transfer from wage earners to investors/capital owners.
That is interesting, because it destabilizes society and we should definitely look into where or who is profiting from the price increases.
You can ignore what your counterparty is saying in a price negotiation. There is no reason it has to reflect reality. Like when an employer says employees are a “family”.
Not true. For example, the current restrictions on the Panama Canal are increasing shipping costs because ships have to wait longer or go round Cape Horn. Its more expensive either way.
US government had about a trillion in deficits before the pandemic then spiked up to about 3 trillion in each of 2020 and 2021 [1]. That is a bump of 4 trillion dollars suddenly over those two years. The past two years seems to be about 1.5 trillion each and the inflation rate has decreased.
The theory is that printing money to spend leads to raising prices. Somebody gets that excess money so they can buy more of whatever they need, maybe start new projects or whatever and this bids up prices. Since this is not based on removing the ability for others to buy what they want (no tax increase) then the overall demand goes up. If you also have supply restrictions while spiking demand, it is natural for prices to rise dramatically.
This creates wage rising demands which, after much agony, more or less gets everything back at the same actual price levels though usually with a range of incompleted projects and a decent chunk of people impoverished while some got very rich. The particulars depend on whatever sector was inappropriately stimulated in the start of the process.
The Austrian school of economics is a good place to learn more.
Taxes are an explicit mechanism to say who the government is taking money from in order to give money to whomever they are giving it to. Deficit spending is an implicit way of taking money as determined by the market which means those with the least power are likely to lose the money.
The pandemic had about a trillion going directly to people. The rest went elsewhere.
There is also the issue of this is US spending versus global spending. Not sure what other countries did and also unsure how much the US dollar being the main global reserve currency factors into this.
1: https://fiscaldata.treasury.gov/americas-finance-guide/natio...
Apparently not distributed in the form of higher pay...
By the time you can even begin to start building a competitor they'll just drop prices until you're bankrupt and buy up your assets for pennies on the dollar.
How many highly qualified people are there in the world that would allow for more than two or three suppliers of things like EUV lithography and modern operating systems/browsers and other advanced fields?
Do you think when T-Mobile acquired Sprint, it created more jobs than the individual companies for experts in cellular networks, or fewer? Do you think it's just a coincidence that after that acquisition was completed, T-Mobile immediately started raising prices?
The T-Mobile example is irrelevant to the specific problem of there being very advanced fields requiring a ton of hard work that not all people can do, much less overcoming numerous real life obstacles like logistics of obtaining the necessary education.
Just to show how hard the problem is, you have a top down, well oiled dictatorship country with 1.5B people with a lot of purchasing power unable to reproduce the chain of knowledge needed to create the top end microchips after decades.
Some things just take time, effort, and luck.
Although I agree with you, I think there's something to be said for the late/post pandemic psychology.
Stocks were booming irrationally. Gamestop, Tesla. Crypto going wild. Unprecedented greed, not just among the big bad corporation, but literally gripping the entire nation. Savings rate had been up since early mid 2020(?) and seemingly every household was flush with cash. Professionals were job hopping for magnificent pay increases. Every 'pandemic hobby' had shortages. I paid $200 for a two leaf houseplant that now costs $30-$50 in 2023. A friend of mine paid hundreds to pre-order keyboards a year out from delivery, and the moment they were fulfilled secondhand markets would trade them at huge markups.
So then my question is: if you are a corporate worker living in this environment of greed, why wouldn't you explore price increases with greater than normal vigor?
I don't buy "big evil corporate" narratives but I do think America in general was engulfed by greed around that time
Once things reopened, people started spending their savings. It's not that the tax credits and bailouts reduced poverty. It's that not having anything worth buying made people save their money instead.
But once things became available again, there was suddenly a lot more money chasing smaller numbers of goods (it takes time for production to ramp up). This leads to higher prices, and inflation.
As this goes on, people start demanding higher wages to keep up with price growth. Once that happens, price growth is fixed. No one's going to accept to a pay cut.
In this case at least some of the price rise is related to the fact that we created a bunch of money. The price of goods is correlated with the amount of money in the system divided by the aggregate number of goods being sold. If number of goods remains the same but more money is in existence prices will rise, especially housing in US which leads to higher cost of labor, etc.
Note I'm not saying that greed didn't play a role in certain places in the run up of prices, but only that greed isn't the only thing that drives up prices.
Surely, they'll deliver....surely.
If it’s not the retailers, it’s the wholesalers, the suppliers, the utility providers, the lenders, the executives, the land-owners, the unions and even finally the workers. All of them trying to make as much money as they can. All of them raising their prices whenever (and if) they can.
Greed is not an explanation, because greed is everywhere in the supply chain, right down to the bottom. The question shouldn’t be why they wanted to (since why wouldn’t they?), but why they could.
Examining which part of the supply chain put their prices up seems pointless unless it sheds light on why that part of the supply chain in particular could put their prices up.