Isn't Greedflation just inflation with different people profitting?
Isn't Greedflation just inflation with different people profitting?
Hey there,
The last year or so I keep hearing the term 'Greedflation' pop up more and more. The Idea here is that there are greedy capitalists that are raising the prices on goods and services faster than their own costs are increasing and this is causing prices to rise.
Now if I think about it inflation is always based on some price increasing, and sometimes because there is some shock that limits how mch of something is available. Oil is scarce because of some natural disasters or war, food is scarce because of drought, etc.
Most of the time there are other sources of the same resources (different crops), or the resource was horded before ('strategic' oil reserves), in both cases someone is able to charge more (eg Profit) from the situation.
So now it sound to me that normal inflation and greedflation are both simply based on one entity in the supply chain increasing the price to take advantage of the situation. Whether you call it greedflation or not depends on whether your personal "in" group is profiting from or or not.
Where is my thinking error here? Is greedflation a real thing?
Its as real as the phrase "get woke go broke" is. Its a political chant. If we're being pedantic, greedflation is actually just price gouging. Sure it manifests as "inflation" to the average consumer, but inflation is a devaluation of currency whereas price gouging is the raising of the price of a product or service above market price.
Ahh yes, that's why so many companies have posted record profifs. Record profits during these checks notes "tough" times.
Tough times for who?
No no you don’t understand. Every single company needs to double its profits every quarter until we can find a way to turn matter itself into profit, consume all of it, and become pure energy, setting ourselves up for the next big bang. The growth must continue until all existence is consumed
Price gouging is rising the price of a product above market price.
But what is the market price? If people are willing to pay for it then its the market price. So its adjusting the price to the current demand. There are times where this is unethical for example profiting from wars and disasters, but generally this is how things go.
So now it sound to me that normal inflation and greedflation are both simply based on one entity in the supply chain increasing the price to take advantage of the situation. Whether you call it greedflation or not depends on whether your personal "in" group is profiting from or or not.
Normally inflation is not based on "one entity increasing the price". That's literally just supply and demand. Inflation is an increase in all prices, not just one or two goods. One entity or group usually can't influence all others.
Examples of situations where nobody benefits from (higher than normal) inflation are things like natural disasters. If all farmers' crop yields are lower, prices increase but each farmer may make less money than they would otherwise.
A shortage of some supply input due to a localized problem (say semiconductors) may cause prices to rise worldwide. If there is a natural disaster (of political issue, etc.) in the region producing the input, no one is the winner because factories may literally be closed.
Greedflation is like a minor form of price gouging. The inflation is real (caused by real factors) but some companies are increasing prices a bit more. Like someone charging too much for bottled water after a hurricane.
I like the idea of replacing greedflation with price gouging, might bring people back to the actual problem.
I think everyone should probably listen to this great report from NPR that dissects this issue. The Tl;dr: is greedflation is not really a real thing.
The deeper answer to your question of, "can one party increase prices in a market?" is sort of basic economics, and the answer is, "Usually, no." In a competitive market, the answer is no. In a monopolistic market (meaning one company controls most of the market, think like Google with browsers) with no government oversight, the answer is yes. Things get complicated when you add in government regulation or oligopolistic markets (markets where only a few players control the market). In those cases, it depends on how strong government regulations on price-gouging are and any anti-monopoly or anti-anticompetitive practice laws are, and also depends on how oligopolists behave. Sometimes, particularly in industries with few big players, the big players will make the same decisions independently. If they do this cooperating it will usually violate antitrust laws, but if they both decide they'll be better off say, not paying workers as much, or charging super high markups, them that can happen. A lot of economic research shows that kind of "tacit collusion" happens in real life, like in the oil and gas industries. But other times oligopolies will behave very competitively, only uniting through lobbyist trade groups if at all (think Microsoft and Amazon in cloud software).
So that's the facts, but here's my economic musing: The reason it feels like greedflation is a thing is a combination of factors:
- Inflation was very real, and very salient.
- Corporations (as mentioned in the NPR piece) crowed about their "record profits" in the short term, and also mention them when they are absolute record profits, not just record profit margins (something not mentioned but very real - a company can make twice as much money but also have spent twice as much, making way "more" money but with identical margins)
- In the US at least, we are seeing the highest numbers of industry consolidation and monopolies/oligopolies since the Gilded Age, so it feels like companies should be able to raise their prices if they want to.
- Media coverage and online spaces have become extremely polarized, so "corporations bad" is a very easy refrain to find if you're watching or reading anything remotely left-wing, and it has been parroted by many democratic politicians as well, because it scores cheap and easy political points (also, and this is just my opinion, it helps vilify corps more in the public eye to help get more support for better antitrust legislation and enforcement, the actual end goal. I don't think senators like Bernie Sanders don't actually understand what's going on with profit margins, I think they're using it to generate political will, but that may be my own bias creeping in).
Inflation is the devaluation of the currency. The definition has been muddied for a time now but ultimately inflation refers to the expansion of the money supply.
As people/corporations borrow more and governments print more, prices increase. Not because those items have more value but because the money has lost its value needing more of it to pay for the same stuff.
If tomorrow everyone's wages would double. Prices would double as demand would increase and the market balances itself out.
Greedflation is a term that shifts that narrative. You could argue that yes there are bad actors for sure. But the term greedflation is redefining inflation, making you focus more on corporations raising prices instead of the main contributor, an expanding money supply.
Inflation is the devaluation of the currency. The definition has been muddied for a time now but ultimately inflation refers to the expansion of the money supply.
A quibble only because it's what I do professionally, but that's not really how people other than macroeconomists concerned with the money supply talk about inflation. It's usually used as shorthand for the price change for a given standard of living. The importance of that matters quite a lot when you start talking about relative inflation between goods and services. We can very clearly say that textbooks have had massive price inflation in the last 20 years, and that has nothing to do with the money supply, it's because they are way more expensive than they used to be relative to other goods. Another reason it matters is comparison across regions. If prices are rising faster in Asheville, NC than NYC because it's a metro transitioning from being cheap to kind of expensive, it doesn't make good economic sense to say that currency is being devalued at a faster rate in NC. What is actually happening is that prices are rising faster there, again, relative to the rate of change somewhere else.
I guess it depends on how you define inflation. To me inflation is the ratio between goods and services and the money supply. Inflation isn't rising prices. Price rising is a symptom of inflation. I just don't think it's beneficial to use inflation interchangeably with supply and demand and price rises, it just creates confusion. I very much favor the macroeconomics view of inflation because through that lens a lot things start making sense.
Since this is your field, obviously you'd know that if you have more goods, you get deflation. And funnily enough when you look up the definition of deflation it's very strongly tied to that ratio between goods and services and the money supply.
I just feel that over time people have changed the definition of inflation. It's no surprise that the term Greedflation has popped up because the topic surrounding it has been convoluted, confusing a lot of people.
A political rhetoric word like "greedflation" or "cancel culture" just means what the people using it intend in the specific cases they use it. A major part of that "meaning" is to express the speaker's political affiliation. It doesn't have to have an objectively comparable meaning at all.
Or it does if you can read and comprehend words
Yes and no. It’s basically just super complicated and we don’t know how much is each factor. But I would highly doubt that part of the rising costs is not also just because people are still willing to pay.
At the end of the day it’s supply and demand. And that fluctuates based on so many different things.
Interest rates being low and money being easy to borrow creates higher demand and will in part cause prices to increase.
Supply chain shortages create massive demand spikes that can have massive effects on pricing of certain products as the supply chain tries to stabilize.
The FED can employ quantitative easing to increase money supply and liquidity, which adds to inflation, but increases economic growth (Theoretically).
Or they can use quantitative tightening to reduce money supply and lower demand, slow growth etc.
Lastly companies understand how normalized inflation has become and can increase what they charge even if their cost of goods isn’t moving significantly. So there is certainly some degree of this happening.
Hopefully the market will re-adjust as profit margins change and consumers spending habits fully adjust to the market.
Basically if everyone re-evaluates what and how they are purchasing, the market has to adjust. If you buy the products you prefer at the inflated cost, companies are not going to lower prices. If you buy budget or off brand items where you can, they will be forced to change their strategy to compete.
Our grocery bill literally doubling in the last 5 years without changing anything to our spending habits (buy stuff on special, off-brand items - which often have much higher margins for large stores, by the way, stock up/freeze stuff, meal prep, eat in season, local markets, etc), yet grocery chains having record profits, is just supply and demand at work. Nice👌