It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the food chain has taken advantage of supply shortage to eke out additional margin along the way. And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. The actual situation is that even if competition does assert itself eventually it is slow to adjust to changes in the environment AND there is very strong hysteresis: those with the opportunity are fast to put up prices and slow to lower them again to the same level even if prior conditions re-establish themselves.
Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation, regardless of the source. When inflation is actually driven by consumers having too much money, fine, go for it. But when its driven by external factors all you are doing is causing misery and maybe adding fuel to the fire as people already maxed out buying essentials are in fact going to seek (require) higher salaries when you add to their cost of living.
What makes economics a weak science, weaker than many other humanities, is the habitual absence of experimental evidence. It's of course hard to have a number of double blind histories of the world economy, yet that is what it takes to be a hard science. If you accept that it never can be (many economists try hard to pretend otherwise!), then you have to accept (again, many don't) that building mathematical models for human behavior (without rigorous validation) is no more scientific then some of the worst stereotypes people have for the social sciences. Yet, economics _is_ a social science, through and through. It studies human behavior. Just because currency lets you quantify and calculate more easily than other kinds of behavior, does not make it fundamentally different.
We do get observational evidence, the only problem is it tells us the opposite of what we thought, eg minimum wage evidence contradicts what theory would say.
Somehow this doesn't seem to matter though, we still teach the theory.
It is actually very easy to build a theory that disproves the idea of minimumg wage affecting employment.
If we assume the economy is already in perfect equilibrium then raising the minimum wage will cause inflation but the wages will adjust upwards with the same coefficient vs the minimum wage.
Another factor is that if you give money to people who haven't met their basic needs yet is that they will spend their money faster which means it circulates faster which will generate another employment opportunity. This is effectively a scheduling problem akin to starvation in process/thread scheduling in the kernel. If you ignore a specific thread too much then it can block other threads and result in underutilization of resources.
The latter tells you that you shouldn't prioritize the needs of the wealthy so that "wealth trickles down".
As long as you're clear about what tradeoffs you're making, and as a society we still want no employment effect, if it works at $100, what's the problem?
You only have something to discuss if it's clear that unemployment will rise, and even so you need to decide how much is tolerable in exchange for whatever you get out of raising the minimum wage.
Do you have even the slightest doubt that unemployment would rise significantly if the minimum wage were suddenly raised to $100/hr? I am certain that it would.
My guess is it would. But the point isn't whether it should be $100, my point is we should use evidence to tell us what we're trading for what. If it's $100 minimum and great depression, I want to know that. If it's $100 and unemployment grows by 2%, I want to know that.
You can run economic experiments. That isn't the problem. The bigger problem is the unstated assumption of a perfectly liquid economy even in the absence of money and the fact that the mathematical models are supposed to drive reality and not the other way around. Homo sapiens is supposed to mimic homo economics.
I used to agree until I saw what has happened to biology in the last few years.
Economics is a science as good as any other. It's just that a lot of people with a lot of money want it to say something so it does. No science is insulated from its practitioners being bought out and the few with principles being silenced.
The bureaucrats who should have been enabling and coordinating scientists instead decided what the policy should be for Covid19 and ruined the lives/careers of anyone who did not fall in line.
>Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation
There are only 3 ways to decrease inflation:
- Interest rates
- Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overall inflation much, if at all.
- Effective policy and investments increasing the quantity or quality of goods and services. This is perhaps the "best" way to decrease inflation, but it takes years, if not decades to materialize. More importantly, it requires the elected members of government to formulate and agree on, which unfortunately is becoming increasingly rare.
>all you are doing is causing misery and maybe adding fuel to the fire as people already maxed out buying essentials are in fact going to seek (require) higher salaries when you add to their cost of living.
This is moot because when interest rates were 0, inflation was outpacing wage increases. Let's say that wasn't the case and inflation was 10% and wages increase 10%. All evens out right? Not really. The problem is that not the people can take advantage of an inflation-induced wage increase. Younger people, with fewer commitments are able to job hop to a better employer or prepare to negotiate for a pay raise. Meanwhile, other people don't have the bandwidth to do so or are retired and depend of fix income, but they still need to face the costs of inflation, and these are also the people who are the most vulnerable.
So in the end, all we can do is raise interest rates.
Also, Australia doesn't really have a choice, because the US is set on raising interest rates. Any country that doesn't follow will have their currency severely devalued when investors sell buy American bonds over their own.
> Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overall inflation much, if at all.
The necessity of rationing assumes that demand is outstripping supply. That's not the case when corporations are price gouging. Egg farms are not selling more eggs than ever before, nor would they if prices were exactly what they were before COVID.
Furthermore the harmful side effects of price controls are often exaggerated. Again, egg farmers are not going to suddenly just kill all of their chickens and switch to building datacenters because we only implemented price controls on necessities like food. Nixon's price controls went fine, as but one example.
Finally, your solution of raising rates does not decrease the need for basic staples like food, so it's not a solution at all. Who cares if inflation for Tesla's or SUVs are at 8% or higher, that's a rich person problem. What matters is the inflation for necessary goods and services, like food and shelter, and your suggested "solution" doesn't really solve anything. All it does is maybe put people who need the money out of work.
> Again, egg farmers are not going to suddenly just kill all of their chickens and switch to building datacenters because we only implemented price controls on necessities like food. Nixon's price controls went fine, as but one example.
Funny you say that...
> Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.
Notice how the first round of price controls went just fine though. Like interest rates, price controls are not a hammer to apply indiscriminately. You have to apply them judiciously and for short periods. Unlike interest rates, at least they don't depress the whole economy, lead to recessions and disproportionately harm the poor.
Hungary tried price controls when this inflation cycle started. It still has some in effect.
Hungary has more than two times the inflation of the EU average. The highest in the EU.
Price controls on flour and gas/petrol led to people buying a lot more compared to supply. This led to gas stations closing. People started baking more, but price of bread exploded because folks bought flour and bakeries were in a tight spot (I don't remember the exact chain of events).
Of course grocery shops increased the price of everything else relatively to make up for the loss on the controlled items.
Clearly, tackling inflation should be independent from providing basic necessities like food and shelter and healthcare.
Nixon price controls did not work, they led to stagflation and a bunch of other issues. In fact it is hard to find any example of price controls working, and a lot of evidence of the opposite.
This (being a MMT model). It's interesting to compare the phrase above something like "good inflation control is to grow the economy to match [the amount of money in the economy]"
Wasn't really aware that this is MMT (I think it follows just from the nature of money as a loan), but.. I don't think matching growth to the amount of money in economy is always a good idea, especially when we are talking about a deliberate recession.
To me, there are two economies - the "real" one, which is what goods and services people produce, and what material inputs they need, and a "virtual" one, which describes savings, loans, the flow of money, and all the property relationships people have.
Normally both are mostly in sync (because trade is bidirectional, flow of goods and services one way, and flow of money and property the other way), but in the case of inflation, you have nominally less goods and services to flow than you have of money (might be caused for different reasons, money being injected, supply shock, etc.).
Now, when economists talk about decreasing grow to match money supply in the economy (through e.g. higher interest rates), what they really mean is to restricting the real economic flow of goods and services in order to match the virtual flow of financing.
The problem with the idea is, the virtual economy is the thing that should really be fixed, not the real one. Breaking the real economy implies that means of production will have to be rebuilt at some point in the future to match the demand again; for example, if you close a factory, and let everybody go, it will be additional effort in the future to start the factory again, rehire the qualified people, and re(dis)cover the institutional knowledge lost in the process.
Whereas adjusting the virtual economy means just changing people's expectations, because that's what money (and other finance assets) are, a share of goods and services obtainable in the future. I had this much money, and I expected to buy 20 eggs for what I got, but it was suddenly discovered that real economy is not able to provide everybody with the money to spend on eggs with 20 eggs, but only say 10 eggs. So my expectations of the future have to change, in order for virtual economy to be adjusted.
So I would argue, breaking the real economy to match the broken virtual economy is always worse for the society as a whole in the long-term, because that means that the real production will have to be rebuilt, instead of just adjusting everybody's expectations to a new reality.
The reason why (neoliberal) economists are in love with the idea of recession rather than inflation is, of course, political. They don't want expectations to be adjusted, because that means all the rich people (and other people with financial assets and other savings) will become poorer and will have to reenter the investment competition again. While people who mostly live from labor (who are often borrowers in the modern economy as well) will be hit less by inflation than the recession (possibility of unemployment and total loss of income). So reducing inflation at the expense of employment and growth is essentially curtailing the production of the economy as a whole so that the incumbent property owners could keep their power structure. It's actually very anti-competitive and anti-free market. (But nobody really wants a free market anyway.)
In theory, this could be deflationary, but there are a few reasons this probably wouldn't be effective.
- It usually takes at least a year before tax changes are proposed before they take effect
- They are always accompanied by spending increases that neutralize any potential deflationary effects
- You actually can't actually increase taxes that much. For example, the US Fed has quantitatively tightened roughly $600 billion in the past 6 months. The Biden corporate tax increases are estimated to bring in $50 billion, and windfall tax proposals also tend to hover around that order of magnitude.
The general goal of all the windfall taxes I've seen proposed is precisely that the money used goes back to ordinary people so it can be spent instead of supposedly being wasted sitting around in the bank accounts of the super-rich. This does not, of course, actually help with the underlying problem that there is too much money chasing too few goods and services - it has the opposite effect by increasing the amount of money whilst disincentivizing companies from trying to expand production. In order to use tax to take out excessive money supply, that tax needs to come out of the pockets of ordinary workers and consumers who'd otherwise spend the money buying stuff, either through an increase in income tax or sales tax/VAT. Usually I think income tax would be used. This is incredibly politically unpopular and an election-loser since people see that the government is taking their money whilst they can't afford stuff and some corporations are making big profits.
Why would giving ordinary people disincentivize companies from expanding production? Quite the opposite, people now have extra money to spent, so they should get the loans going for investment expansion!
The last sentence is exactly why you need to tax the big owners and corporations and not the workers, because they control most of the additional money supply in the profit-driven inflation.
(That being said, and as was noted, of course government can also run a surplus with the windfall tax, and that takes the money out of circulation entirely. However, as I explain above, inflation can be more complex, it might be money oversupply in only parts of the network, not the whole network.)
I assume GP meant the act of imposing windfall taxes - if you know for certain that x% of your profits will be eaten up in taxes, but you can only make some sort of rough guess at how much more demand there might be as a result of cash handouts etc., there's probably not a great motivation to expand production.
Isn't that just restating a (probably) truism that investment into financial bubbles tends to be easier than expanding real production?
Where does the extra profit go (in the absence of windfall tax)? I doubt it goes to expanding production, because without windfall tax, you won't see demand change (and, btw, with windfall tax you don't have to estimate, you will directly see customers having more money to spend). So it will go into stock buybacks, real estate and other ways to inflate asset bubbles. These are seemingly easier ways to park money than to make actual real investment decision of expanding certain production.
Could allow the reserve bank to change the mandatory rate of retirement savings in Australia - currently 10.5% of their wages.
It'd have the same effect as interest rate rises in removing consumer demand without the kinda icky feeling of just sending that money to the income statement of a bank as mortgage payment increases.
Obviously not a silver bullet, but perhaps another tool to make available.
Loans being secured with assumption of ever increasing property value is one big contributor to the current inflation. Especially once everybody started using their inflated house value as downpayment for their second house ad infinitum.
I’m sure someone smart can come up with many better ways to tame this, other than just turning the inflation knob.
No expression of confidence intervals, no need for error bars on this statement? As repeatable as gravity?
If we were to honestly restate the above with reference to uncertainty, we’d struggle just to get past the idea that inflation is measurable in any accurate way, never mind that it can be deliberately influenced so easily.
> There are only 3 ways to decrease inflation: ... - Interest rates ...
Why is this taken as a fact? You hand out money to people with money. It is a zero sum game.
The reason you need to increase rates with inflation is to make it viable to sit on the currency. Otherwise you need to sell it as fast as possible to avoid inflation.
> ot really. The problem is that not the people can take advantage of an inflation-induced wage increase
Sure, but inflation doesn't affect everyone equally. Rent increases or mortgages increases are part of inflation, but do not affect everyone. Nor is the price of many goods if you don't buy them.
Some people are also suggesting progressively decreasing the capital gains discount on property, to force the housing prices down over time and address supply issues.
> Your products are in demand and there are buyers who are willing to pay more than the theoretical market price.
What does this even mean? How can buyers be willing to pay more than the market price and the sellers still make more money? If such a case were to occur, it wouldn't be correct to call the old price the "theoretical market price." Basically, what you're describing is literally inflation: the purchasing power of money has decreased, so people are willing to spend more of it to buy their goods. Sellers recognize that the demand curve has shifted, and raise their price accordingly.
The answer to the question of paying above market price is market power. When firms have market power beyond perfect competition they adjust prices above the theoretical competitive level where marginal cost = price. A change in supply generally, ie shrinking, gives firms more market power to charge higher prices => inflation. Intrest rates really don't touch market power so it is pretty fair to criticize interest rake hikes as a solution here. Intrest rate hikes also slow down business investment which makes supply less responsive. But it REALY depends on the market. If you are importing a lot of goods from compaies with a lot of market power right now, ex: oil, your domestic government and the fed of your country can't do much to fight inflation other then to tamp down economic activity overall with interest rate. What is really the issue is government policy to combat inflation has fallen by the wayside since feds are more responsive.
> Intrest rate hikes also slow down business investment which makes supply less responsive.
That's kind of a simplification. Interest rates affect business investment. But many kinds of business investments are just "business" for other companies. E.g. when TSMC invests in building a new chip fab, they buy EUV systems from ASML. ASML uses that money to pay their suppliers and employees, etc. Also, interest rates affect real estate prices, which affects real estate development, which is a big source of employment. Government debt is also more expensive, so high interest rates also apply downward pressure on government spending.
I agree that there's too much market consolidation, and that isn't impacted much by interest rates.
I think the OP is suggesting that there’s a “natural” market price that was perturbed by an extraordinary and temporary event, but that skewed/irrational customer perceptions and market inefficiencies let current sellers milk that perturbation for longer than the original disruption would theoretically warrant. And that this behavior can become a ratcheting change that drives price inflation entirely through profit-taking.
I’m sure there’s developed economic theory around this phenomenon and more sophisticated language than they used, but it felt like they got the point across.
> I’m sure there’s developed economic theory around this phenomenon and more sophisticated language than they used, but it felt like they got the point across.
the theory and evidence behind it shows the opposite, "sticky prices" are usually always sticky in one direction.
wages is the biggest one, very hard to decrease wages but very easy to increase.
consumer goods are the same, it's easy to discount your stock to sell it - but if you raise it you have to deal with "price gouging" and "profiteering" and "causing inflation".
That doesn’t really make sense. Raising prices not supported by demand would result in less profit in theory. For instance, prices may go up in a supply disruption, but the loss in sales means suppliers earn less. So if prices were artificially high, it would actually be more profitable to lower them.
I could definitely see milk consumption increasing if prices were lower. Tons of products use cheap fats that could use butter instead if it were cheaper. If milk products were cheap enough, you could use it as animal feed. If it was really cheap you could burn it for energy. Also worth noting is that the dairy industry is subsidized by the government, so the amount of milk being consumed is already higher than you would expect if the price was set at the market price.
For eggs, similar things could occur. Soy lecithin is a common emulsifier, but could be replaced by egg lecithin if eggs were cheaper than soy.
It's also important to note that growing wealth inequality means you need to seduce fewer customers with these higher prices. It's most obvious with America's pharma industry where the cost to produce seriously outstrips the retail value and the market has zero incentive to make costs obvious and a whole insurance industry and it's companies are the buyers, not the individuals.
Similarly lowering interest rates into the ground when consumers still had plenty of money but supply was constrained probably wasn't a wise move either.
More targeted assistance of just affected industries during the pandemic could have prevented almost all of this.
This is one of these “Doesn’t anybody see this? I feel like I’m taking crazy pills here” moments - dropping the interest rates didn’t do why we wanted (just pumps up property and equity prices with cheap money but doesn’t actually stimulate the economy), even some countries set them negative which didn’t work either, and raising interest rates has never been really shown to reduce inflation (just that you can raise them high enough to cause a crisis, which causes far more problems, and then hopefully by the time the recovery starts inflation contributors have abated…)
It's mostly been under the management of a party who straight-out optimise for company profits and screw the little guy (who spent 10 years continually voting for them because Chairman Rupert said so).
The problem with monetary policy is that there is no way to actually decrease the money supply, other than repaying debt. If there was literally any other mechanism to get rid of excess money, then you could, for example, do helicopter money when there is a recession and do the inverse of helicopter money when there is a boom and never even touch the interest rate.
I wish central banks followed MMT and instead of interest rates they introduced the concept of minimum annual redemption. If the central bank wants to lower inflation without raising the interest rate it instead increases the minimum redemption rate. What this means is that your loan has to shrink by x% annually. The interest payments you would be paying instead are used to pay back the loan/destroy money faster. Interest doesn't destroy money, it circulates through the economy once so it is neutral on inflation. Higher interest rates mean higher monthly payments which means less demand for loans but the minimum redemption rate does the same thing but also destroys money faster so it eliminates inflation faster.
"When inflation is actually driven by consumers having too much money, fine, go for it."
Except that interest rates don't really affect that either [0]
Inflation is always, everywhere, a lack of competition problem.
Firms will charge what they can for their output. Inflation is causes by people paying that price because there isn't another alternative in the market, and 'no deal' isn't an option.
Except that the evidence shows that money supply increase doesn't necessarily lead to inflation. Countries that go through hyperinflation always have a systematic underlying problem that they use money creation to try to fix. "Ah ha!" declare the monetarists, "evidence for our assertion that money supply is the cause of inflation", conveniently ignoring all the counter examples.
The point of the GP post is that competition is how prices are reduced. There're buckets of economic theory that's at least as robust at the monetarist assertions that shows that prices drop when competition works properly. Every issue that underpins price rises is effectively a failure of competition. There are always winners from inflation:
Apples and oranges were just an example to illustrate the problem with the CPI, which is what most people mean when they say "inflation", after which the US CPI is used extensively, including lots of historic data on variance. I can only conclude you didn't read the whole article or you're making a rhetorical point in lieu of an argument because the conclusions are uncomfortable.
I actually agree that price rises like oil are not really inflation - what Keynes would call semi inflation. Regardless, oil price rises were not due to money supply and the subsequent monetary shenanigans are just economic theatre (and even that is being questioned at the inner sanctum: https://www.federalreserve.gov/econres/feds/files/2021062pap... )
That implies there is a single factor that “causes” inflation. That’s not true. There are always inflationary and deflationary impacts on prices.
Oil and boomers leaving the workforce and covid derailing shipping and monetary policy and 1000 other things can all be pushing up prices at the same time.
All general means in that sentence is that the price increasing factors are more prevalent than the price decreasing ones.
If there are several structural issues (eg greatest workforce change in 3 generations, war in Europe, worldwide pandemic, etc) they can all contribute to a general inflationary (or deflationary) trend.
It’s a very particular economic school that says only monetary policy causes inflation. And we have years and years of loose policy that didn’t put inflation on the front burner for economists to argue about.
You’re arguing circularly. Currencies are worth less when things cost more. Things cost more when prices increase.
If a central committee increased the price on everything without changing the monetary supply that would still be inflation. Similarly if the invisible hand does it or if there is broad collusion amongst producers.
Australia's problem is inflated property prices, it's money being generated out of the air. This is a disaster for renters and is creating disparity. Boomers and older gen X are or will be cashed up to their eyeballs after offloading one or two investment properties, this has happened over the last few years.
I think it's going to be worse. Boomers think their house is worth million dollars today, but in 5-10 years when more of them start to retire, they will find out that a) millenials and younger can't afford their inflated prices and b) there are no other boomers to trade houses with. So if they rely on their house to be a retirement fund....that might not exist when they actually retire.
>And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price.
What do you mean "theoretical market price"? What you're saying makes no sense in the context of standard microeconomic theory. If supply is constrained, then microeconemic theory predicts that the market clearing price will go up. Companies can always price their goods at higher than the market clearing price, but microeconomic theory would predict that doing so would result in less profits.
>But when its driven by external factors
What do you think the "external factors" are here? Companies suddenly getting more greedy?
Post Keynesian theory and endogenous money show how it works.
Firms don't charge a 'market price'. They put a mark up on costs and sell as much as they can at that price.
In other words marginal productivity theory is nonsense.
When you do that, and you get a supply crunch as we have now, then prices will go up as we are seeing.
It's fairly obvious. I will try to sell my stuff for the highest price I can get for it. Your only choice as a buyer is to go somewhere else, or refuse to buy.
Prices are controlled by excess capacity to supply. When that capacity vanishes, particularly amongst needed goods and services, you get price gouging.
It's similar to overstretching a spring. We have damaged the supply side and it won't go back to its prior path.
Few do this. Television tells them they want things, and they'll get angry if they can't have them. So they put it on their credit-cards and kick the can down the road.
Show me an economist that uses the word hysteresis. Their models are quite primitive IMHO and not because they're powerful like the ones used in thermodynamics, but they act like they are.
"We have known about the concept and relevance of hysteresis since the 1980s. In terms of the academic work, I was one of the earliest contributors to the hysteresis literature in the world. I published several articles on the topic in the 1980s that came out of my PhD research as I was searching for solutions to the dominant view in the profession that the Phillips curve constraint prevented full employment from being sustained "
Hum... They all seem to say "stickiness" instead, what means the same thing. Modern macroeconomics is all about it, or, well, at least the mainstream macroeconomics is all about it.
What irritates me so much is that all of these things are bolted on afterthoughts. People point at their "beautiful" perfectly liquid models and then when you tell them the real world is "ugly" and illiquid they get angry and tell you, you are wrong.
I mean the most classic example is the theoretical barter economy that doesn't exist because you need money to lower transaction costs for a high degree of the division of labor (which isn't disputed). The reason for that is that economists came up with this theoretical model and the text books want to teach barter first and then money which gives the wrong impression that barter economies actually existed. No, people either managed the economy the way we manage it internally within families and corporations or they straight up used a commodity as their money or some hard to forge symbol like precious metals. There is not much in-between because barter is inconvenient as hell and it causes social difficulties because the fairness of trades has to be evaluated very carefully, opening up the potential for conflict.
Once again information assymetry rears its head. Many people continued buying under the assumption it was cost inflation, they definitely would've purchased less if they knew they were merely being milked for profit. The article even addresses this.
If I ask you a better tool to use than interest rates (nor deficit reduction either, which is being done) - are you going to MMT me? Is it worth my time to ask?
And do you mean to say that mean interest rates should be lower than they are now?
> ... even if competition does assert itself eventually it is slow ...
This analysis is not accounting for the risk that businesses face in the current environment. Australia has recently put a lot of pressure on small businesses. I still see empty store fronts every day. It is likely competition is slow because all the people who could compete are weighing up the odds of their business being shut down and not liking their chances.
In fact, the idea that inflation is being 'driven' by profits is foolish. Profits are a result of market conditions - inflation was caused by mass disruption of the economy combined with money printing. The people who benefited the most from that were big businesses but they weren't in the driver's seat for what was going on.
There are so many threads here. The reserve bank governor is deeply unpopular in the broader public because of 2021 comments he made about there being no interest rate increases needed until 2024 [1]. As mentioned in the article, many companies are posting record profits, including supermarkets [2] - leaving low and middle income people hurting, and working more hours or side jobs. Those same people also face an adversarial rental housing market [3]. Competition, at least in this market, seems to be exerting very little downward pressure on prices for commodity goods. Buy-now-pay-later schemes continue to damage the poorest in our society - even big banks now make it easy to take on bad debt [4].
There are many challenges in Australia, but also opportunities to make things better.
Australia is addicted to property appreciation. They have thrown so much gas on the fire that it’s burning the rest of their economy. Canada is the same way.
We’ll see what Australians think when they can’t live off HELOCs and retire based on purely owning some 70’s bungalow anymore.
This is actually true for most of the countries. The governments take the biggest cut through the whole process:
1. Sales
2. Approvals
3. Duties
4. Rates
So the higher the prices, the higher their revenue would be. And the inflation caused by that would also in their favor as it virtually diminishes their liabilities. There is no better way of making quick money in short term for the governments, but it will for sure backfire at some point. Those politicians know that, but they cannot care less as long as it doesn't burst in their term.
Not sure about Australia but Canada would probably include being poor as good enough criteria to approve MAID at some point. Our fucking politicos are already tinkering with the idea doing it for mental people. What would prevent them from going further.
Only 30% of people have mortgages, why should the remaining 70% care, many can even put money in savings accounts again after 15 years of them being basically worthless.
He never said interest rates wouldn't rise either, he basically said they don't forecast the conditions that warrant a rise won't happen until then.
Here's a pro-tip if you took on too much debt under the naive belief that 0.1% interest rates were the new norm, sell your overinflated assets and live debt free.
It's not 30% of people, it 35% of HOUSEHOLDS were home owners of the dwelling there were in on census night, with there being a total of 9.8 million 'households' in the country. A massive % of Australians working age population have 1 or more mortgages.
Census dwelling data does not give an accurate picture of the number of Australians with mortgages. For example on my census our household reported that we rent the dwelling that we were in, because we do. We reported nothing about the mortgage we have on an apartment in the city that we moved out of 1 year earlier. According to that data point your using my household would be seemingly unaffected after interest rate rises outside of potential rent stress.
You are not disproving his claims, 35% of the households being homeowners means absolutely nothing without knowing how many live as rentees for example. Also am I an houseowner if I paid 90% of the mortgage? 'Massive numbers' can mean anything between 0.01% and 99.8% depending on where you live, who are your friends and coworkers etc.
All that being said, it sounds just like any other western country, or in fact any country in the world apart from very, very few. Welcome to 21st century, you have mostly FED to thank for this, everything else just snowballed in its bad decisions.
> Only 30% of people have mortgages, why should the remaining 70% care
Because the remaining 70% rent, with many wanting to own a property someday.
Higher mortgages mean higher rent.
Australia has very little social housing.
Renting for families is an unpleasant experience. You can be forced to move with little warning, and finding a new rental in your area can be very difficult and sole destroying. So many would love to own if they could, if only for the stability it brings.
People who can't afford to buy get stuck with borrowing costs being passed on, anyway, and get trapped in rent spirals. I do agree that some of the criticism of Lowe is undeserved, though.
> State governments, local governments, and property development, basically colluding to not build cheap and affordable high density housing.
australian taxation is already one of the highest in the world. In order for the gov't to build affordable housing (high density or not), it would take even more tax revenue to pull off.
I for one, will not want to pay more taxes.
The free market works for food, so why not have it work for shelter? The key sticking point is zoning issues, and approvals. These decisions are made at the local (council) level, and the existing residents overwhelmingly dislike a high rise going up next to their house/backyard.
The other issue is that a large portion of real estate buyers want land ownership - ala a house. The thought of living in an apartment is at best a stopgap for them.
Therefore, the capital appreciation of an apartment is meager at best. This also causes chronic underinvestment in apartments (esp. quality ones), and exacerbates cheap, low quality shitboxes that people dont like much (and reinforces the idea that they don't want to live in an apartment in the long term).
That site literally gives the overall tax rate as 28.68%, 42nd in the world. The US is 53rd, and the UK is 29th.
The single figure of 45% is the highest tax bracket, which only starts at $180,000/year. Australia has a higher minimum wage than most countries, so a large proportion of the population are in minimum wage jobs. People on minimum wage here make ~$40k/year and pay around 14% tax.
Not that any of that really matters if you're talking about government spending, since the overall tax rate is what determines government income, not what any individual person is paying.
Nice try. 1. Income tax is just kind of tax. 2. 45% is the highest tax tier in a 5 tier system, paid on every dollar over $180K. 3. The same site you got "#17" from says Australia is ranked #42 the World for an overall "tax burden" statistic ...
If I own an investment property, then I'm going to want a return on that investment.
I want the rent payments to cover the mortgage, and to see capital growth over time.
When you don't get decent returns on your property investment, you'll just move your investment elsewhere.
However with a lack of diverse investment opportunities, housing is a decent play that people understand. So even if returns are low, it's seen as worthwhile, especially over the long term.
This is especially true when you get the much hated "Boomers" and older X-Gens buying properties for their children as it's seen as a better use of money than their kids renting.
I've seen queues of people down the street for open-inspections of average properties, and "Boomers" literally signing offers on the kitchen table at the open of any decent apartment.
If property investors art investing, then builders will stop building and we'll deepen the housing crisis. We've already seen a few major building firms go under in the past 18 months. It's not easy to create a building firm capable of sizeable construction project. It takes years to trade school investment to actually train and qualify people to be able to build houses, and we've under invested in trade schools.
There is a general sentiment on Reddit and elsewhere that if you cant afford the mortgage rises then you shouldn't own an investment property. This just doesnt make any sense, and isn't a useful way to think about it. I get that people are angry with the situation, but it doesn't help change society and housing policy when the younger millennials don't understand all the policy issues or motivations of those that own Rental Properties. :-)
I see regular calls to ban AirBnb as if thats an easy answer... :-/
It makes perfect sense in a market like Australia.
If you are making 15% appreciation YoY, your mortgage raises are covered and then some by that increase. If you do not have the liquidity to cover those raises, then get out of the market for someone who does. What you are describing is passing all the risk of your investment onto another party to take advantage of the entire profit.
We do, in fact, understand ALL of the policy implications here. It seems like you don’t. The housing market should exist to PRIMARILY provide housing. Any effects such as you being able to cover your margin by passing on your increase to a tenant is a secondary benefit and should be curtailed to meet the primary need of the economy.
Investments should have risks to make economic sense. In Australia, property owners have mostly been buffered from those risks. Economically, the question needs to be asked as to what value investors provide to the market? The current property investor class is for all intents a purposes a vehicle designed to remove money from the pockets of poor people and put it in the pockets of upper middle class people. Most landlords take bonds to fund improvements to their houses after a fingerprint is found on the wall or the concept of “reasonable wear” is not accounted for, they pass on almost all of the costs, and when a person asks for help with a problem they get ignored indefinitely.
You would make similar money in the stock market but you are taking advantage of broken system that enriches people already in the system. Mortgages give access to houses because they are necessary. People now take mortgages and use them as a margin loan to fund speculation and investments.
The policy answer is to stop allowing investors to access all of the benefits that have not been designed for them. Fixing the John Howard era middle class welfare rorts would begin to fix the problems.
I think the core issue is that most people don't think of it as logically as you do.
As you stated the right thing to do is to look at interest rates and not overexpose oneself to the effects of inevitable rate changes.
How most people think about it: I can afford the monthly payment and it's cheaper than my rent. Let's do this.
Fortunately banking laws in Australia prevent banks from granting loans to people that they can just barely afford. However despite this most people still don't have any savings or disposable income (When compared to similar "rich" economies, Australia has one of the lowest rates of personal savings in the world.)
The result is that a lot of people will have to cut back and find their lifestyle significantly changed in order to keep their homes.
We've had wage stagnation for ~15 years. I've long wondered what it is about our job market that keeps wages down whilst company profits continue to grow. Perhaps an unspoken collusion around wages, or maybe lack of salary growth in government jobs that in turn pushes the private sector.
Lack of competition and choices is another issue, as is Australia's dispersion of cities. It's not straight forward for someone in Adelaide to take a job in Sydney that pays more. Workforce mobility certainly pays a part.
When I lived in the UK, I took it for granted that you could commute to another major economic City for work, especially in the South.
Because of wage stagnation, I see a major debt crises looming with BNPL and its old friend the credit card.
It's a house of cards. Taking on more BNPL debt that is serviced with credit-cards is going to become a huge problem for Australians.
I see a lot of people in my community that appear to be doing OK, but with mortgages that gone up over $1000 a month.
People have little savings and live month to month, spending everything they have.
Changing lifestyle and spending patterns doesnt come easily to people, and I see it as the slow boiling frog problem. They'll maintain their current lifestyles because they dont realise the spending and credit problem they have.
Where is the extra money coming from to service their mortgages?
Well, it's credit cards and BNPL. Which will slowly grow until they are in trouble. Maxed out limits on multiple BNPL schemes backed by multiple maxed out credit cards is going to create crippling debt levels.
It may take 18 months to manifest, but I'm sure it will.
I already know that many people in my community carry credit card debt month-to-month and I cant see how this is going to improve.
It's not just those with Mortgages that are in trouble. Renters will be in serious trouble too as all those investment property mortgages have gone up too. Which means huge increases in weekly rents are starting to appear. The Australian subreddits are filled with irate renters.
Just getting my thoughts down, and anything could happen I guess! :-)
Employees can import foreign labour which has the effect of putting downward pressure on wages. Hence why wage inflation has stalled since COVID restrictions have been eased.
And in terms of rental market, it has been widely reported.
Westpac has forecast that Australian rents will continue to hyper inflate until mid-2024 because of soaring international migration.
Westpac Business and St George senior economist Pat Bustamante warned the current rental inflation was likely to be longer and more severe than the prior cycles because demand via immigration was vastly outpacing supply.
“Given the current supply and demand dynamics, and the lag in supply, the peak would likely take longer than people expect”, Bustamante told The AFR.
“The return of migrants and international students… [is] putting a further strain on the rental market”. [1]
People don't dare say reduce immigration because then you get called racist.
> Employees can import foreign labour which has the effect of putting downward pressure on wages.
You didn’t cite any sources here, and according to [1] this is wrong.
In response to your comments about the rental market, I noticed you picked a source that is overwhelmingly anti-immigration. (I counted 4 more articles either linked or ‘recommended’ that described in varying terms how immigration is the cause of all of Australia’s problems)
I don’t say that as a means to ignore the argument, rather I think we’re all better when we can recognise biases - internal and external.
According to [2], the rental crisis has been caused by many factors predominantly related to the pandemic rather than immigration.
> People don't dare say reduce immigration because then you get called racist.
I don’t think an argument should be dismissed on that basis, either! But surely you accept that some who advocate for reducing immigration do so simply because they are racist.
Some may avoid the suggestion because they recognise that immigration is longstanding policy and perhaps a defining feature of our country.
Some may see that other countries who are less welcoming of migrants are indeed having the same wage/inflation/property problems.
So it is possible that some do not reject your argument because they think you are racist but because the argument is not convincing.
I didn't think I needed to provide evidence, because it is common sense driven by basic supply and demand.
You want a developer, then if all or nearly all developers are employed you need to offer higher wages to them to defect to your company. If however you can import an immigrant and pay them the same or lower wage (which is better than they get in their home country), then suddenly you don't need to offer a higher wage to local developers.
The fact that I need to explain, and prove, this to supposedly intelligent people is frankly mind boggling.
When there was no immigration during Covid salaries from people rose because employees could easily get a higher salary job so the employers were forced to increase salaries.
Now that immigration is open employers will offer less salary compared to the market but a fresh of the plane immigrant will still end taking that job because his/hers first priority is getting a job and they dont fully know what the market rate is.
> I’m not aware wages on average increased during the pandemic.
Did you switch jobs during Covid? Talk to your friends and colleagues who switched jobs and then get back to me.
Before you link any random website, you have to figure out what is their agenda. There is lot of propaganda. These so called studies claim that immigration does not hurt wages, then you have to look into who is sponsoring these studies. Lot of times its some industry lobby group who wants to lobby for more immigration to suppress wages funds these studies to get the conclusion they want.
If you trust such studies you should also trust that cigarettes are good for you because cigarette companies paid scientists in the past to conduct studies to show doctors recommend cigarettes.
Don't fall for such propaganda again or try running a business where you have to hire employees.
> Talk to your friends and colleagues who switched jobs and then get back to me.
They increased their salary!
Did you know that lots of other people didn't change jobs during the pandemic? In fact, some people even lost their jobs! And lots of others kept the same job at the same salary (while inflation increased).
From 14 March to 3 October 2020, for example, the ABS reported that wages were down -3.3% (and would be much lower if you excluded JobKeeper payments)[1].
We're on a tech website, so if you had scoped your comment to "tech workers salaries rose on average", I would probably agree. Do remember that the world doesn't consist entirely of tech workers.
> There is lot of propaganda.
This is certainly true. But given you didn't provide any of your own sources to back up anything you're saying, some might think you're using accusations of "propaganda" as a simple means to disagree with something you don't like.
Could you explain how that supports the point you first made?
My reading is that it says more people changed jobs than usual, and noted that changing jobs often leads to higher wages (in case I wasn't clear before - I agree!)
It makes no comment about immigration or a significant increase in wages during the pandemic (whether or not related to immigration), which I understand is your argument.
Wage growth in fact dropped significantly in the first year of the pandemic[1], before rising to its highest level in 10 years just recently - coincidentally(?) a year after we opened back up and our migrant arrivals increased significantly[2].
I don't feel as though the conclusion is unspoken. The government specifically and clearly sets out to keep wages suppressed by the number of 'skilled' and 'unskilled' visas it approves. Meanwhile we have the lowest vacancy rates ever and the rate in which we are building homes is still out stripped by immigration.
You raise a really good rate with the lack of workforce mobility. From outside Australia it is probably really hard to understand how immobile our workforce is considering how large the country is. The governments at both a federal and state level seem to be very keen on ensuring the professional working class who could be remote stay immobile putting greater pressure on cost of livings in centralised cities.
> It's not straight forward for someone in Adelaide to take a job in Sydney that pays more
why isn't it straight forward? There's nothing stopping someone from interviewing (let's say, remotely) and accept a job in sydney while in adelaide, and then move when they secured the offer.
There's some moving costs - but i would imagine it's going to be in the order of about 1-2 months of rent at most. Of course, if you have kids, with school and such, then you'd have a harder time.
> The reserve bank governor is deeply unpopular in the broader public because of 2021 comments he made about there being no interest rate increases needed until 2024 [1].
> ... This is the basis for our assessment that the cash rate is very likely to remain at its current level until at least 2024.
That statement is preceded by quite a long analysis, and discussion. His assessment was wrong obviously. He deserves flak for not being wise enough to not make such a strong assertion. But ... he never said unequivocally "no increases until 2024". It's quite frustrating seeing the media bludgeon those words into his mouth.
Also, like all central banks, he was trying to jawbone to get the results he wants without having to induce the pain of the action required. Even this week, there was talk of 3 more interest rate rises. He is hoping this will cut spending, reduce demand, and drive down inflation so that the interest rate rises aren't required.
NAB - the big Australian bank that uses children in their ads, reading scripts in a grown-up manner about the importance of money: https://youtu.be/bk952JcRyok
They've aired several ads like this using children to convince people that NAB is "more than money".
On supermarket profits. I've noticed price-jacking has reached a new level. Seemingly in collaboration with the brands to deceive customers. For example, "50% off dishwasher tablets"... sounds good. But then you see the "normal" price they expect you to believe: $48 for a pack of 32 dishwasher tablets. That's AUD $1.50 per tablet / USD $2.23 per tablet. There's no chance dishwasher tablets cost anywhere near that much to make.
You're right, my bad. To clarify, I chose dishwasher tablets as a common product among many I've noticed sharply increase in price here in Australia.
AUD $48 for a pack of 32 tablets is about USD $32. When I look on Walmart US site, they are selling the same brand and similar product (Finish Powerball Quantum) in a 50 pack for USD $15 which is about AUD $22. I don't expect Australia to be the same equivalent price, but the price difference here is crazy.
I ran the numbers, looks like the Coles powered, which works fine for us on mains water no issues, is about 9 cents a wash, using less than 25 grabs powder at $0.39 per 100 grams. The powder goes in the doeser, plus a small amount in the main compartment so the first rinse cycle is doing a pre-wash.
No Aldi here in Tas, but I'd have to break the tables to approach price competitive.
But record profits is non-sense. Profit goes up with inflation in nominal terms, so you need to compare real terms. From the article you pointed to:
'Mr Kierath said it was important to note the companies' profits fell in the last six months of 2021, so these results were rebounding off an unusually low base.'
Ergo, they look good because they were depressed in the prior reporting season. Ergo, it's just corporations bashing, because people are mad inflation is going up.
If you look at Woolworth's profits over time, it would look to be going back to normal levels[1] after a dip due to COVID.
This isn't convincing, why should company profits be immune from inflation but wages stagnate and fall below the rate of inflation as has happened this year?
Corporations bashing is definitely warranted in this case.
Because companies are profit making entities? They are going to do what they need to, to make a profit. Which is why when inputs rise, they typically pass those costs on to consumers. You will note that Dominos share price fell by ~30% because they noted that demand had been down as they tried to pass on the increased cost of inputs.
If you are an investor, you will want a return on your capital. Would you invest in a business, where the return is lower than what you can get in a bond? If your profits fall too far, unless you can convince investors that its temporary, they are likely to withdraw their funds, and then your business will end.
Prices are also less sticky than wages which means they rise and fall in response to supply and demand, whereas wages are more sticky.
This is absolutely garbage, and doesn't belong on HN.
From their 'analysis':
"Record profits on petroleum and mining activities (reinforced by a spike in global oil and gas prices following the invasion of Ukraine) led this surge, but the overall corporate sector experienced the most rapid growth in profits of any comparable period in 35 years."
So because of global shortages, commodity prices reached record highs, and companies most of which are price takers benefited from that, is now suddenly corporate greed?
BHP doesn't set the price for Iron Ore, the market does. BP doesn't set the price for Oil or Natural Gas, the market does. When you cut off Russia who are a key supplier of those goods, that creates shortages and causes prices to spike. This means companies which extract those goods will make more money as long as costs remain the same.
Most companies aren't making record breaking profits, their profits are rebounding to pre-COVID levels. Of course they look good compared to COVID times, when demand was suppressed.
In Australia businesses like supermarkets, banks, the largest airline etc. have just announced huge profits in their latest reports.
I think the report definitely could have been better written, because a lot of the inflation is more due to passing on external cost increases, or domestic businesses raising their prices to account for inflation, and all keeping the same margins, hence resulting in larger profits in nominal terms. So I think it would have been more accurate if they’d put it that way.
The important thing is that it’s not demand driven - the RBA talks every update how scared they are and how important it is for them to avoid a “wage-price spiral”, which is nonsense. Median wages here have barely kept up with inflation for 10 years, and now they have gone strongly backwards. Absolutely no sign of any kind of spiral…
Banks - banks make more money when rates are higher, as they can get a bigger spread between what they offer savers and borrows. CBA, Australia's largest bank has a net interest margin of 2.1%. This means that the difference between the cost of interest paid to savers, and that borrows pay is 2.1%. This 2.1% covers all of the expenses and profit the bank makes. Banks make obscene amounts of money due to the volume and value of the loans. Amazingly, banks want to maintain their NIM, to ensure they can fund all of the compliance costs, risk management, and technology costs. If you looked at the Investor Presentation you would have seen that in the last quarter the NIM for CBA dropped which is why the share has been sold off. Due to strong competition in the banking sector
Qantas announced record profit because demand for flights is really, really high, but flight volumes have not returned to pre-covid levels. This is why flights are still very expensive. Again, inflation is on the demand side, to counter the increase in demand, Qantas has raised prices to ensure the flight demand meets what it can supply. You will note, Qantas is also actively trying to build out more flight capacity to cater to the excess demand.
Supermarkets, I already spoke to, down thread. This is a reversion driven by reduced costs from COVID. 'Mr Kierath said it was important to note the companies' profits fell in the last six months of 2021, so these results were rebounding off an unusually low base.'
Ergo, they look good because they were depressed in the prior reporting season. Ergo, it's just corporations bashing, because people are mad inflation is going up.
> Qantas has raised prices to ensure the flight demand meets what it can supply.
This is weasly language for "price gouging". There's literally no problem with Qantas just selling the seats they had at reasonable prices and then saying, "sorry, no more seats available".
Instead, you're trying to portray it as totally natural and just that they take advantage of any circumstances to squeeze as much out of their customers as possible.
Market-think has perverted your worldview. The people tolerate markets because they generally serve the common good via innovation, competition and self organization. When the market deviates from that objective, like by price gouging to enrich a few at the expense of the public, it is right to criticize and correct it, not try to justify that the market is right and the common good is wrong.
If there is 1000 units of something but demand for 5000 units, you increase the price until demand equals 1000 units. There is no conspiracy. This is fundamental economics.
“Market-think” is about freedom. The alternative is “authoritarian-think” and that always ends in tears. Just start setting prices by government decree and see what happens.
In the case where products can be profitably produced at a cheaper price, the people should band together, put aside the market system, and produce all 5000 units. More people are served.
If its costs $100 to fly somebody from Sydney to Melbourne and Qantas is selling tickets for $1000, Australians should run an airline and sell tickets for $200.
Governments should get into the business of keeping markets competitive.
Even in an ideal world where there's no fundamental difference in the cost of producing 1000 units or 5000, companies aren't going to be able to sell 5000 at the same price as they could 1000 when doing so exceeds their current capacity. Expanding that capacity means more staff and equipment, which costs money that has to be paid for somehow. It also takes time, which means that it cannot act as an immediate solution to the cost problem and also that there's substantial risk involved - by the time the extra capacity is there, the demand may not be. In order to justify taking on this risk there needs to be the expectation of substantially higher profits.
Also, commercial airlines in particular are an industry with a history of over-optimistic expansion followed by cut-throat competition on pricing and then bankrupcy, and I'm pretty sure everyone in the industry knows this by now which is why there's not a huge rush to expand massively.
Government do get into the business of keeping markets competitive. That is one of the drivers for regulation. You will note, Qantas isn't the only domestic airline in Australia.
Airlines are also highly capital intensive. It costs a lot of money to own and maintain a plan
I didn't suggest government should dictate production levels or prices.
I am suggesting governments should consider putting together not-for-profit, but self funding organizations, with fair and reasonable salaries for all employees, to produce good and services for its people.
Then you allow the free market to compete against that baseline profitable business.
If for profit companies can't produce a better or cheaper product, they should just not exist.
Australia's ABC is a good example of what I am talking about. There are commercial offerings, but there is a baseline keeping standards up.
Of course gets a lot more complicated when your state sponsored factories can't compete on quality or price and is not selling any widgets at all. At what point do you decide the market is working to your satisfaction and you should shut it down.
How much of a loss do you allow? How much is it worth to a country to be able to build x widgets or offer x service?
How good would it be if we still had the ability to manufacture things here in Australia? How do you put a dollar value on that?
>I am suggesting governments should consider putting together not-for-profit, but self funding organizations, with fair and reasonable salaries for all employees, to produce good and services for its people.
What specifically does this entail? Is the government providing starting capital? Or is it in charge of creating the organization and letting them handle the rest?
>If for profit companies can't produce a better or cheaper product, they should just not exist.
>Australia's ABC is a good example of what I am talking about. There are commercial offerings, but there is a baseline keeping standards up.
According to wikipedia ABC receives more than a billion dollars per year from the government. How can you say with a straight face that companies that can't compete with that "should just not exist"?
>What specifically does this entail? Is the government providing starting capital? Or is it in charge of creating the organization and letting them handle the rest?
In my imaginary utopia, they are public servants paid salaries and benefits directly.
The government already provides heaps of starting capital for business it wants to get get off the round.
>According to wikipedia ABC receives more than a billion dollars per year from the government. How can you say with a straight face that companies that can't compete with that "should just not exist"?
Every Australian pays just a few cents a day for our ABC, and I can say it with a straight face, because there are profitable commercial channels here in Australia that it directly competes with.
Aussie post is similar, there is a nationalized option, and there is commercial competition. I believe Aussie posts runs a profit as well, ABC is pure expenditure.
I'm not an expert in any of this, just think its fun to muse about when it pops up here on HN.
>In my imaginary utopia, they are public servants paid salaries and benefits directly.
Oh also, these millions of jobs the government is providing. You could think of these as a UBI. Fairly easy to get. You can move around between them fairly easy until you find one you like with people you enjoy spending time with.
> If there is 1000 units of something but demand for 5000 units,
Except that's not the case here, both supply and demand for eggs and milk have not changed much, neither have the costs to produce either. That's why prices are skyrocketing and profits are soaring.
Look, the data is out there and very clear on this point:
Yes, they euthanized a bunch of chickens, and yet total egg output remained basically the same. So where did the inflation come from? Why are egg producers suddenly recording record profits?
>and yet total egg output remained basically the same
source? Also, due to how price elasticity curves work, even if production is "basically" the same, it doesn't necessarily mean that prices would also be "basically" the same. If demand is inelastic, buyers will bid up prices to astronomical levels.
>This is weasly language for "price gouging". There's literally no problem with Qantas just selling the seats they had at reasonable prices and then saying, "sorry, no more seats available".
>Instead, you're trying to portray it as totally natural and just that they take advantage of any circumstances to squeeze as much out of their customers as possible.
Would you not have done the same? Seeing that we're on HN, there's a good chance that you took advantage of the pandemic tech bonanza (ie. tech companies paying astronomical amounts for developers). If you were currently making $150k, and some tech company was offering you $250k, would you turn down that offer because you want to sell your labor "at reasonable prices"?
No, I haven't done the same, for years in fact. But that's besides the point, because individuals are simply not in the same power bracket as powerful corporations that dominate whole markets, particularly when corporations have a proven track record of behaving unethically.
Note this isn't limited to job hopping. If you saw the red hot job market and asked for a raise, that's arguably the same.
>But that's besides the point, because individuals are simply not in the same power bracket as powerful corporations that dominate whole markets, particularly when corporations have a proven track record of behaving unethically.
What are you trying to say here? That corporations are unethical and as a result shouldn't be conferred the right to raise prices? Or that price rises in absence of increased costs doesn't count as price gouging, unless you also have "power"?
Qantas is particularly scummy. They received over $2B in taxpayer money in bailouts and other concessions, stood down thousands of employees and did a $500M stock buyback.
Qantas has announced plans to create 8500 new jobs over the next decade to grow Australia’s biggest carrier now it’s back to reporting billion-dollar profits after COVID-19 read more
I don't know why people keep believing in this myth, this reinvestment only happens when there's sufficient competition and no coordination, which is not the world we live in.
> In Australia businesses like supermarkets, banks, the largest airline etc. have just announced huge profits in their latest reports.
As someone who isn't from Australia, can you provide some actual figures, preferably with historical comparison? Without specifics "record profits" doesn't mean much. The most banal interpretation is that profits in nominal dollars went up, which is totally expected given that the economy grows and there's inflation, making it almost guaranteed that each year has "record profits" even if all else was equal.
I'm not sure whether youtube is broken for me, but the linked video caps out at 480p resolution and on top of that it's letterboxed. As a result it's impossible to see what the chart is actually saying, or where the data is sourced from. Reading the transcript, the date range for the figures is "pandemic period" and "recent period", which means the comparison is probably bunk as a result of cherry picking.
Right, so instead of taking 5 seconds to search youtube for a better copy of this clip which is everywhere, you'll just assume your prejudice is correct? I don't know where you got your date ranges:
>Right, so instead of taking 5 seconds to search youtube for a better copy of this clip which is everywhere, you'll just assume your prejudice is correct?
No, if the source you provided doesn't convey enough information, I'll assume that your claim is unsupported and respond accordingly. I'm not going to wade through the dumpster fire that is youtube search to try to do my opponent's work.
>I don't know where you got your date ranges:
From my previous comment:
>Reading the transcript, the date range for the figures is "pandemic period" and "recent period"
They correspond to literally the first few lines of the transcript
0:00 according to this chart what is the
0:02 biggest driver of inflation during the
0:05 pandemic the blue is the dark blue is
0:08 the recent period
I don't see how this addresses my claim that the data was cherry picked. If anything it strengthens it.
1. the date ranges chosen for the dark blue period starts at 2020 Q2 and ends at 2021 Q4. This is an unusual date range to pick. Most analysis use round numbers and/or whole years. The start date conveniently corresponds to the trough of the pandemic recession period.
2. the date ranges chosen for the light blue period covers a 20 year period. This date period probably isn't cherry picked, but comparing long run data with short run data is inevitably going to show discrepancies, since long run data is less volatile than short run data.
Given that the BEA publishes such data on a quarter to quarter basis, they could have easily made a line chart showing the data across two decades. The fact that they chose to use a bar graph that only shows numbers for two suspiciously chosen time periods, and their overall reputation[1] makes it hard to take the chart at face value.
It’s so wrong to pretend that sellers don’t have a say in how much they ask for their goods that it borders on disingenuous. To blame the market (as if that existed apart from buyers and sellers) is to ascribe agency to something which is wholly responsive in fact.
If buyers are willing to pay $80 for a barrel of oil, must BP ask for $80 and not a cent less? Of course not. You may claim they are right to do so, but don’t pretend they have no choice and therefore no blame if there are ill effects to such pricing.
>If buyers are willing to pay $80 for a barrel of oil, must BP ask for $80 and not a cent less? Of course not. You may claim they are right to do so, but don’t pretend they have no choice and therefore no blame if there are ill effects to such pricing.
Since we're talking about commodities, prices are most likely set by bids/asks from all participants, rather than your model of a shopkeeper deciding what to write on price tags. If the current bid/ask for crude is at $90/$91, then there's no reason why BP should sell their oil at $80. Doing so would just end up giving $10 worth of value to whomever accepts BP's offer. In fact, you can even make it a business, by beating everyone else to the punch, buying oil at $80, then selling it back to the market at $90. The only way to avoid this is to sell the oil at market prices.
Yeah. Im sure global inflation has nothing to with cheap almost unlimited credit created by central banks around the world all around the same time. Including the one responsible for the world reserve currency: the USD.
I mean, if a large group of people with income x, suddenly have access to 2x more credit for a mortgage that would do nothing to say... housing prices right?
It blows my mind how media so succesfully can completely steer away everybody from the quite obvious root cause with essentially "hey look, Putin, covid and a Chinese balloon".
> please describe based on facts who writes a number into a computer that will be the price.
The person selling the goods, with a limited but sole-focused understanding of the competitors, stock coming in, stock going out, and forecasting does the best job he can to set the price that maximizes his individual profits
Inflation is a monetary phenomenon. Prices are rising in Australia because the Central Bank created $450billion out of thin air during the pandemic [1]. The bank has persistently kept interest rates low, creating a massive housing bubble [2]. For everyone saying there was 'low' inflation in the 2000s despite cheap money, remember that China and Asia were rabidly growing, flooding the world with cheap manufactured goods and lowering real prices (often 10x reduction). The inflation can still be seen when looking the price of Australian real estate, or stock markets such as Nasdaq. As for this article, companies would always like to increase prices and profit. They can only do so in unison if there is suddenly more money sloshing around.
Doesn't the supply of stuff also matter? How about people's expectations of future prices? How about global-market linked prices of economic inputs, foreign money supply creation? Etc.
I think I could come up with 50 reasons why prices might increase if I sat down long enough.
Yes, understand what the parent is putting forward is a fringe theory. Some schools of economics like Austrian economics are obsessed with the money supply and ignore other factors that clearly matter a lot.
> How about people's expectations of future prices?
These also matter.
Now ask yourself how they matter. Any fall in the value of money must come from an increase in supply or a decrease in demand. If we expect future prices to be much higher than they are now, we will seek to hold less money (because its value in the future is lower) and this drop in the demand for money in the present will drive down the value of money in the present.
It never actually explains what exactly a "profit-price spiral" is. Even if company profits are to blame for inflation, the only solution that central bankers have at their disposal is to increase interest rates to cool aggregate demand. This is why we leave central banking to technocrats rather than people with a political agenda.
If we assume what a "profit-price spiral" is by analogy to "wage-price spiral" it has an obvious theoretical problem.
Wage price spirals happen because [when the economy is operating near short term capacity], when the cost of living goes up, workers are able to demand and get more money, but that in turn leaves all firms incentivised to put their prices up some more. On the other hand, when prices go up, profits go up... and then firms don't really have any incentive to put their prices up any more because most of that profit isn't finding its way into their customers' pockets (that's a reason for Australians to be concerned about the welfare implications, but it isn't a "spiral"). Companies don't index their prices to average profit levels either. I guess second order effects could include B2B companies and companies selling luxuries to recipients of executive bonuses and massive dividend payouts putting up their prices, but I'm not sure you get an economy-wide "spiral" from that in theory or practice...
This doesn't belong on HN, because its garbage analysis.
From their 'analysis':
"Record profits on petroleum and mining activities (reinforced by a spike in global oil and gas prices following the invasion of Ukraine) led this surge, but the overall corporate sector experienced the most rapid growth in profits of any comparable period in 35 years."
So because of global shortages, commodity prices reached record highs, and companies <b>which are price takers<b> benefited from that, is now suddenly corporate greed? BHP doesn't set the price for Iron Ore, the market does. BP doesn't set the price for Oil or Natural Gas, the market does. When you cut off Russia who are a key supplier of those goods, that creates shortages and causes prices to spike. This means companies which extract those goods will make more money as long as costs remain the same.
It really isn't, publications like the Guardian have just misled people about how the economy works and why corporations make profits in situations like this. It's basically a direct consequence of two things: people cannot buy stuff unless it's actually available to buy, and money does not disappear when it's spent. This means that when there's not enough stuff available to buy, everyone bids up prices until demand meets supply again, with the money ending up as profits at whatever parts of the supply chain are most constrained. This is a perfectly reasonable place for it to end up: those companies are actively helping make the problem less bad by existing and investing in production at the level they did, it incentivises more such investment, and - most importantly - limiting corporate profits and price increases cannot prevent people from becoming worse off in real terms because the amount they buy is still limited to what's actually being produced.
Presumably you think this is "whack" because you feel it's unfair that companies are making more in revenue without a corresponding increase in expenses. What about the reverse situation? ie. there is an oversupply/demand collapse, prices go down, but their input expenses stay the same so they make less money. We're seeing this in the semiconductor industry. Should we stand with them in solidarity by continuing to pay pre-collapse prices, and have internet commentators point out how it's "whack" for them to rake in less money even though their expenses hasn't dropped?
I’m a formerly-hardcore (now kinda softcore) leftist and it bothers me to no end when leftwing parties ignore the huge body of economic research/literature/education in market economies to try to push some agenda.
A profit-price spiral makes no sense as a concept without widespread collusion. Let me phrase what they are observing in a way that is actually based in market economics: when the monetary supply increases without actual productive increases in supply (due to things like QE, dovish monetary policy, stimulus) it leads to inflation. Inflation in both wages and good/services prices is not uniform - if you gave every billionaire $100mm you would see different effects than if you gave every person $1k.
What we’ve seen in a lot of economies is that inflation lately has shown up very quickly in consumer goods. You cannot necessarily increase the supply of consumer goods quickly - the supply is inelastic in the near term, especially since unemployment is low. As a business, if you are constantly running out of the supply of some good priced at $X it’s a pretty sure sign your prices are too low and you’re leaving money on the table - so business raise prices on those goods. And with very low unemployment rates, businesses cannot easily drive those profits into expanding their business because it’s hard to hire new people.
Of course, these business have also had to pay employees more and pay more for the goods they sell. But if the market price increases outpace those increases you get profits, and with low unemployment, those profits have nowhere to go except shareholders (or maybe M&A). The businesses would not just pay their workers more because they don’t know what to do with their profits - the entire reason they started a for-profit business was for profit so it’s fairyland thinking that the money would go anywhere else.
By its nature, the strong two-tier economy that exists within Australia is not captured within analyses like this.
The “law abiding” tier that pays employees the award rate, pays something resembling proper GST & income tax, and doesn’t use Proprietary Limited tricks to escape long-term liabilities — the companies in that tier are suffering (especially the smaller ones). These companies are captured in these analyses.
Those in the “under the table” tier, such as your local kebab shop or the guy who takes cash to mow your lawn weekly — they are doing OK. Cooking oil may have doubled in price and fuel is now a significant cost, but they had enough margin to absorb that and can now raise their prices as everyone else does, staying healthy. These are “shadow” companies that don’t appear in analyses.
There’s also a strange kind of third tier, which is “lucky bastards” who score a government job or contract. All tiers of government pay stupidly high amounts, and there’s enough money flowing through the government that this tier (group?) is actually a significant portion of Australians. Imagine welding something for $3,000 for a local council, when it should only be $500 normally. The local council isn’t capable enough to push for reasonable prices.
Oh, and then there’s mining… that’s a whole different thing. So much money there.
At the end of the day, if you’re a small or medium (so 1-200 employees) business that does things properly (pays taxes, stays compliant, and charges honestly), you’re completely screwed.
Out of interest, what makes you frame the two-tier economy like this? I’d always thought of the two tiers as rent-seeking vs firms that must compete, not small legal business vs the rest.
For example you mention some companies paying award rate, but isn’t that a requirement for all companies? Obviously resource companies can afford to pay well above board, but isn’t that simply a function of high returns from rent-seeking activity?
Paying award rates is a requirement of all companies, but in reality many small and medium businesses don’t.
Small business pay under the table, offering certain perks to employees that make them OK with the arrangement.
Medium businesses use “contractors” where workers like delivery drivers aren’t employees but individuals (or sole traders) working under piecework contracts.
Neither of these are reported to any data-collecting body.
(which is the point I was trying to make above but I got a bit side-tracked!)
I can't believe how people buy this "wage driven inflation" thing. The asset owner have had insane gain due to X, mostly money printing I guess, and when wages start to increase it is a problem? Workers are just balancing out supply and demand ...
Inflation is not driven by "company profits" either most likely. It just looks that way when wages are getting a smaller share of the inflation nominal gains than company profits.
It really does look like Australia tried to print its way out of the pandemic last year, and now its purchasing power hasn't kept up with other food, energy, and other inputs prices: https://tradingeconomics.com/australia/money-supply-m1
They accelerated the rate at which they issued debt / created money significantly, with the effect of it affecting purchasing power.
The "they're just printing money" is probably too simple an explanation for CPI inflation, but stimulus payments the printing paid for may have eroded purchasing power.
This is a direct consequence of keeping low interest rates while unemployment is low and inflation is high. It’s Macro 101. You should point your finger at the Central Bank and fiscal policies, not corporations that are acting entirely rationally in the face of good shortages and consumer purchasing power increases.
Inflation is increasing corporate profits, it is not driven or caused by corporate profits.
In Australia the central bank rate is about 3% and inflation is much higher (I think 6-7% right now). There were goods shortages during COVID caused in part by broad increases in the monetary supply and difficulty in transportation (which is exacerbated by low unemployment, which is directly linked to aggregate demand, and hence interest rates).
When unemployment is too low and inflation is too high, you are supposed to increase interest rates to lower aggregate demand. Yes, central banks are doing this now and it has had some effect so far, but they have not gone far enough to address the problem.
Who cares what the RBA rate is, let's talk about what mortgagees are paying on loans now.
If the Australian government wanted to take money out of the supply it could, for example, (temporarily?) increase the GST and use that tax revenue to either / both pay back government debt or use it to ... pay public servants more.
This concept that "the RBA only has one tool" is true as far as it goes, but obviously not the only way of tackling the issue.
The rates you pay on your mortgage is strongly correlated with the RBA interbank rate.
You are absolutely right, the government could increase the GST to reduce demand. That would be political suicide, but fiscal policy absolutely can play a role. The government has abdicated from this, so it can blame the independent RBA and banks.
The banks are only allowed to loan a certain amount. The department that prints mone6 is the same department that regulates how much can be lent by all banks (in the US), so it is the same type of "creating money" as printing money is. And is accounted for when calculating "how much money is in circulation"
It's called a reserve requirement ratio (RRR), the bank must hold a certain percentage of loans as cash. It's mostly a closed loop due to rehypothecation so money supply is proportional to RRR. It keeps getting cut and it's one of those expansionary policies you tend not to hear much about. It's been a long time since I paid attention to it but I think there was talk of using cash equivalents instead of just cash at which point given the fraudulent incompetence of rating agencies you might as well not have a RRR.
Australia hasn’t had a reserve requirement since the late 80s. They’re largely been phased out globally in favour of capital requirements and open-market operations.
"The Reserve Bank’s reserve requirements are not a Required Reserve Ratio (they are not set as a percent of the financial institution’s liabilities). The Reserve Bank’s reserve requirements are set annually as an AUD amount per financial institution with the aim of ensuring that each institution has sufficient funds to settle AUD transactions after business hours. The amount is set taking into account the historical pattern of each institution’s AUD transactions."
Is there any information on what those figures are because it's kind of important when calculating money supply? If not the RBA could 'print' large amounts of money and not tell anyone.
This sounds like the discretionary component of all capital-requirement systems.
> the RBA could 'print' large amounts of money and not tell anyone
The RBA publishes accounts and money-supply estimates. Also, all banks can create money. Estimating money supply from capital requirements isn’t precise.
It actually creates debt out of thin air. The loan receiver has debt principal plus interest to be repaid. The bank's asset is the interest on that debt.
Net money after the loan is repaid is negative - if we include fees and interest then a repaid loan from the bank in isolation actually removes money from the economy.
What keeps it all going is the continued issuance of debt, which is often used to repay existing debt, as well as invest in capital that will ideally generate enough returns to repay interest.
The solution to that problem is rolling it into even more debt. Zoom out to a multi-decade timeline, and that's pretty much what we have done in the real estate markets. Bigger mortgages and longer-termed mortgages have lead to an incredible expansion in the amount of money in circulation.
Yes, at some point, this reaches a steady state (which it probably has, I don't expect mortgage terms to keep growing), but that expansion of the money supply will absolutely manifest itself as inflation.
Which it did, in the asset markets. The only novel development last year is that it has finally trickled down to commodities.
No, its is a definitional axiom of certain “economic” religious sects, like the Austrian school. In a sense, since prices are a product of a number of factors including money supply, you can always construct a hypothetical alternative monetary policy which would prevent inflation, so any inflation can dogmatically be constructed to be a consequence of too-loose monetary policy.
Meanwhile, what's your take on the historical fact that gold rushes (when money was backed by gold) resulted in inflation?
What's your take on the fact that the US had net zero inflation from 1800 to 1914, and endemic inflation ever since (except for a brief period during the Depression)?
And why are oil price hikes always blamed for inflation, but when oil prices fall there's no deflation?
Let's face it. Inflation is the result of the Fed policy of "spend all you want - we'll just print more!"
The Austrian school is expressly, overtly, an unashamedly ideologically normative rather than empirically descriptive, which is why they are the example I cited.
> Meanwhile, what’s your take on the historical fact that gold rushes (when money was backed by gold) resulted in inflation?
That money supply changes can cause inflation is not the same as all inflation being the fault of money supply changes.
> What’s your take on the fact that the US had net zero inflation from 1800 to 1914, and endemic inflation ever since (except for a brief period during the Depression)?
Well, that its false, there have been brief deflationary periods far more recently than the Great Depression (the most notable recent one, though not actually the most recent, being during the Great Recession.)
> And why are oil price hikes always blamed for inflation, but when oil prices fall there’s no deflation?
Oil price falls can lead to deflation (IIRC, that was the main cause of the brief, slight 2015 deflation).
> Let’s face it. Inflation is the result of the Fed policy of “spend all you want - we’ll just print more!”
A baseline bias to low inflation is a deliberate policy goal of the Fed (and basically every central bank, its not something unique about the Fed); that doesn’t mean every instance of actual inflation is accurately solely attributable to monetary policy as the cause. There are some inflation spikes that are due to factors like exogenous supply issues, there are others that are due to monetary policy miscalibration. The latter are more easily resolved, as demonstrated by the intense–but brief–post-COVID-recession inflation spike. (Which was, while there were other factors which contributed to it, largely caused by the failure to sufficiently-quickly dial back monetary stimulus in the rebound from the brief-but-sharp COVID recession.)
Take a good look at it. The dollar has decreased in value since 1940 by a factor of THIRTY. Can you really explain that with the price of oil? Do you wonder why the inflation calculator starts at 1913?
Calling expansion of the monetary supply and the resulting inflation "bunk" is hilarious.
There are so many examples of inflation driven by monetary policy (Germany in the 1930's, Argentina, Venezuela, Vietnam) that denying the impact of money supply is just burying your head in the sand.
As far as I can see, the post in question isn't saying <expansion of monetary supply -> inflation> is bunk, they're saying <wage-price spiral -> inflation is bunk> bunk?
Yeah nah, there’s that alt economics we were talking about.
There are multiple causes, money supply is only one of the factors at play. Using your fire example, there are three factors, miss any one of them, no fire.
Choosing then to blame a single factor is … well it’s just wrong.
And that’s if we grant your fire analogy as valid in the first place.
Regardless of the above - conflating monetary supply inflation with general inflation is a favourite meme among the Austrians, they aren’t the same thing. Austrian economics (usually beloved of libertarians) is an idealogical, rather than descriptive, school of thought.
Ok, please suggest how else you can get inflation (sustained, across the board price increases, i.e. devaluation of money) without an increase in money supply (either through new money or increased debt).
In the abstract, sustained demand but with a drop in supply of goods, will produce price inflation with no particular need to change the money supply.
This is what we have seen with (for example) gas and oil in the wake of the russia-ukraine conflict.
I claim, as I have always claimed, that monetary supply is only a single variable in the calculation, not the be-all and end-all. The idea that it is the only factor (not the only important factor but the only factor) is a tenet of the religious pseudo-economics of the "Austrian School". Not that economics is the most rigorous of sciences in the first place, but Austrian economics is more akin to a moral code and set of beliefs.
In the abstract, sustained demand but with a drop in supply of goods, will produce price inflation with no particular need to change the money supply.
Thats not inflation in the sense that economists care about inflation, that’s a price change due to supply and demand, and a subsequent impact on cost inputs dependent on it.
Housing is a good example. Supply takes time and if demand goes up, prices rise, but thats not inflation.
If the only factory producing widgets blows up and the price goes up (and the price of everything else dependent on it) the value of the currency isn't eroded at all. As proven by the fact that the cost of goods unrelated to widgets is unchanged.
Its funny you call monetary theory “pseudo-economics”, yet dont seem to understand some of the basics of economics yourself.
> If the only factory producing widgets blows up and the price goes up (and the price of everything else dependent on it) the value of the currency isn't eroded at all. As proven by the fact that the cost of goods unrelated to widgets is unchanged.
But if it happens across an economy due to, for instance, a rise in the input costs of fossil fuel which plays out across multiple sectors, this can push prices up across the board without needing the money supply to change at all.
> Its funny you call monetary theory “pseudo-economics”
I did nothing of the sort, monetary theory and Austrian economics are not synonymous. Once again, money supply is not the only factor in inflation, this is a very mainstream economic view.
Yes, prices can rise broadly due to oil prices rising, but they come back down when oil prices drop.
And the price rise isn't because the currency is less valuable, so its not the type of inflation that concerns economists - the kind that drives consumers to spend rather than save or invest.
Just like the converse - if energy costs dropped due some new technology, it’s not deflationary (each dollar is worth more than before).
> And the price rise isn't because the currency is less valuable
> Just like the converse - if energy costs dropped due some new technology, it’s not deflationary (each dollar is worth more than before).
If the price of everything rises or falls, the currency is more or less valuable when compared to goods, and this is a type of inflation which affects consumer behaviour, particularly if that rise is sustained.
Inflation in many countries is measured against some sort of 'basket of goods' that are (in theory) chosen to reflect costs that affect everyday life.
I'm not trying to dismiss money supply as a factor, clearly it's a huge factor, particularly over the longer term.
Nope, doesn’t seem that way, the world is reeling from a variety of economic shocks right now, from covid to the Ukraine war and resource-prices fallout.
“Printed the most money in history” is also one of those talking points that hides a massively complicated truth and doesn’t mean what people think it means. Soundbite economics (really soundbite anything) should be considered harmful.
That's a graph of growth, so every year it's above zero there's "the most money in history"! That graph is actually a neat indication that the correlation isn't particularly strong for two variables with an established causal relationship, and that inflation (high by recent standards; normal for most of the 20th century) actually kicked in properly as the money supply started to fall, at the time we were subjected to a supply shock.
Australia's money supply curve represents a much smoother upward trend compared with the US, but their recent inflation spike mirrors that of the US
The 'excess' money was soaked up into asset bubbles not measured by most inflation indexes, or at least under weighted. Which is fine until people sell those assets and spend the money which they have to do eventually.
Of course, there was inflation but could not be reflected by CPI. Just look at the asset prices, can you explain the dramatic increasing? In the past, printed money mostly went to rich people and made asset prices skyrocketing. But this time is different, people live by paycheck got some chunk of it. And here we are.
But the money supply was kept roughly in line with the growth of the economy. Inflation only occurs if the total money supply grows faster than the economy. There's some nuance over how much money is actively being spent vs sitting in savings, but the broad strokes of it is economic output divided by money supply.
Only because money velocity fell off a cliff, money velocity is one of the multipliers that goes into the apparent quantity of money as the same dollar is used more often. Given the asset bubbles due the printing people are incentivized to invest into it so long as the bubble continues to grow (or at least not shrink) people are incentivized to keep holding. So you can keep printing money without seeing inflation so long as asset bubbles can soak it up and money velocity drops. Now when the reverse happens, which will happen eventually even if it takes a very long time, that is when you get inflation.
So paradoxically increasing the base money supply enough to generate asset bubbles has a deflationary effect.
Trickle down economy you know. Of all these house millionaires you need to sell your house and move somewhere cheaper to actually benefit. It takes time until enough people cashes out to move the needle.
Money velocity is an important part of inflation as well.
Back in 2008 during the financial crisis, the Fed printed a ton of money and used it to buy crappy mortgages. However, banks were worried about solvency and the Fed was paying interest on reserves the bank kept with them - as a result the "extra" money never made it into the system right away.
It's like trying to light a fire and when it doesn't start pouring more gasoline on it. It will eventually light, but if you've poured a ton of gas on it by then it's going to burn fast.
It seems that the chart proves my point: years of quantitative easing and inflation around our below 2% and economists complaining that they were failing to foster inflation and could not explain why.
Non exhaustive list of things that drive inflation, ranked by how curious I find them:
1. A widespread belief that prices will increase (sometimes called inertial inflation). This is also deeply tied to public trust in monetary policy.
2. Increase of prices to accommodate increase in uncertainty that a business plan will be fulfilled, for whatever reason (distrust in institutions, unpredictable government, decline of shared infrastructure).
3. Increase in "Monetary supply", aka how much money is available in the economy. This includes increased Government spending, printing bills and bank leverage (i.e. for every dollar deposited in banks, how many times was it loaned out to someone else?).
Two years ago I left a relatively low paid job to a more fulfilling, higher paid job. I get a small pay rise but have coped ok with the enormous increases in prices and interest rates.
I recognise not everyone is so lucky. However… there are plenty of jobs. Sadly, the only way to get a reasonable pay rise in Australia is to leave your job and go to another one. Your existing employer will need to pay market rates for a new enployee. They are just expecting you to dislike change.
As opposed to what, them normally not trying to increase profits? Had the pandemic not happened, would we expect CEOs to be like "meh, the last few years were pretty good so I'm not going to try too hard to make more money"?
>As opposed to what, them normally not trying to increase profits?
I didn't imply or state that: strawman.
>Had the pandemic not happened, would we expect CEOs to be like "meh, the last few years were pretty good so I'm not going to try too hard to make more money"?
More of the same.
If you're interested in posting a serious reply/question to my input about the consequences of trying to meet revenue targets, I'm more than happy to continue the discourse.
If you're just looking for opportunities to spout your nonsense, don't expect a reply.
> As opposed to what, them normally not trying to increase profits?
yea, actually that.
i dont think it would be unprecedented if some companies said "hey we are making a healthy profit already, so in order to not harm our customers we'd like to keep prices as they are or reduce them if possible"...
>i dont think it would be unprecedented if some companies said "hey we are making a healthy profit already, so in order to not harm our customers we'd like to keep prices as they are or reduce them if possible"...
It won't be unprecedented that a few companies (especially founder/family controlled) showed alturism like this, but I'd be very surprised if a publicly held company straight up told its shareholders that it was going to kick back and relax this quarter because things are already pretty good.
> a publicly held company straight up told its shareholders that
the pressure to do the opposite (of just raising prices whenever opportune etc) would be much higher for sure and the usual incentives for cxo's are usually against that as well.
that being said communicating with investors what kind of company they are investing in and that they value long-term value than short term squeezing of customers is all valid and fair imo...
Inflation is not caused by profits or wages. Read Friedman. No one has yet made a convincing argument that he was wrong. Inflation is a monetary phenomena, not a function of normal supply & demand. In other words, it's precipitated by governments monetary practices. Look at the US, who spent 15+ years with very easy money. Now they are inflating like crazy. Proponents of Modern Monetary Theory are either ideological or simply liars. Debt matters, government spending matters, money supply growth matters. Lying about the actual inflation rate matters (the US again). As for the minimum wage, look at what happened with San Francisco & Seattle boosted their minimum wage. The current economic situation is nothing new. It's as simple as a grad school case study in macroeconomics
Hahaha... tell me more about whether bank reserves really matter, or reverse repos count and how many EuroDollars there are in "circulation". Even people at the Fed know they don't know. The global credit machine and rehypothecated swaps are both the liquidity that keeps things going and the confounding variable that makes any estimate of "money supply" hilarious. How many years (and $T) of QE was there... and nothing. Then supply chain breakdown and poof! You might as well argue it was caused by "printing bitcoin".
Talk to an honest graduate economist. These are all inputs to a complicated foul smelling brew. I'm not arguing that debt doesn't increase risk (eg doesn't matter), but (especially when repaid) it can easily be deflationary. I will argue that we had a perfect storm of deflationary pressures (high initial rates, rising productive demos, globalization) and now we have the opposite (zero rates, falling productive demos, deglobalization) and it was all started with a pandemic and broken supply chains.
The best description I can give is that keeping businesses and consumers solvent/spending during the pandemic (note that was actual spending not QE) did ALLOW prices to rise rather than causing massive demand destruction (and likely depression-deflation). Inflation at least allows those decades of debts to be repaid and might lower risk.
The Canadian government massively expanded the money supply and took on a ton of debt giving payments during Covid.
Even the BoC was caught off guard when they said “inflation was transitory”.
Rather than admit it was their own policies that caused inflation they’ve decided to blame industry.
Don't get me wrong, profit is going up for these industries, some of it driven by supply issues. You could argue that higher profit is helping sustain inflation (costs go up -> wages goes up -> costs go up -> etc), but higher profit is NOT the reason why inflation spike in the first place.
Its quite entertaining to see but no doubt it’ll work on most of the population.
I agree that the government deciding to recklessly print money and not raising interest rates when they should have is the primary cause of the inflation. But are the two reasons mutually exclusive? Bad policies and corporate greed?
Agree with your point about the scapegoat and the media spin too.
Corporations are motivated by profit, why would they not raise prices to reflect demand?
If 100 people showed up to some guy’s hot dog stand and he periodically ran out of hot dogs everyday/had so many people in line that people didn’t even line up, he’d make more money if he raised prices until he stopped running out of hotdogs or had shorter lines. That’s because his hot dogs were mispriced relative to demand: at that price quantity demanded exceeded quantity supplied. If I were that hot dog guy I’d feel no guilt in raising the prices of my hot dogs 20% so I could make more money. Corporations work exactly the same way.
I agree with this in principle. In reality, these grocers have been caught fixing bread prices[0] and not a single person has gone to jail. The dairy industry is also a cartel. Of course, they can keep doing this because the government is in bed with these corporations, and so we come full circle to bad policies.
That’s a fair point. Collusion and price fixing should be prosecuted and investigated to the fullest extent since it harms the general public so much. What I am describing would apply absent of collusion though - collusion is not necessary for this to occur
It looks at some recent time period (roughly, during COVID) and breaks down the growth in money spent by where it goes (e.g. company profits, labor, etc.) and how much of it is due to real growth in output vs. being due to purely inflationary price hikes. It aims to show that a disproportionate amount of the excess money spent, beyond that accounted for by real growth, went to company profits.
There are two problems with the approach in this article.
First, its choice of time period is somewhat arbitrary. Over the course of this particular 11 quarter time period (Dec 2019 - Sep 2022), corporate (+38%) and small business (+30%) profits grew much more than labor expenditures (+17%). But just from the data presented, over the final 8 of those 11 quarters, growth in corporate profits (+22%) and labor expenditures (+18%) were comparable, and growth in small business profit (+7%) was much less. This article doesn't present the data, but what would happen if choosing a longer time scale? Quarter over quarter we see business profit growths are very volatile, sometimes growing, sometimes shrinking (negative growth). So unless you're looking at longer time horizons like decades, you can probably find runs of 8-12 quarters showing any narrative you want.
The other problem is how this article tries to determine how much growth in each component was real vs. purely inflationary. The problem is it assumes the real growth of each component was the exact same (about 6.5%). After observing 38% nominal growth in corporate profits and 17% nominal growth in labor expenditures, it simply assumes the real growth in each (due to real growth in output) was the same 6.5% for each of those categories. One implication of this presumption would be that over any time period, the real output growth of corporations and the real output growth of small business would always be the exact same, percentage-wise. This is definitely a completely flawed presumption. And it's doing most of the heavy lifting in the paper's overall argument.
If that money was given to people who spent it on things they would have bought anyway if they weren't off work due to the pandemic restrictions, then it won't increase inflation. If it is spent on things they wouldn't have normally bought, then it increases inflation.
Is there an alternate link to the article? I cant seem to get the guardian to loaf and i want to see if they made the very basic mistake of missing that Australia is largely a resource producing country so inflation in resources prices would drive profits and inflation but would not mean inflation is driven by corporate profits.
Inflation can be measured with and without wages. That’s one of the first things to know about inflation. Inflation with inflated wages is arguably a bigger concern. I didn’t read the article but the headline is good news for Australia.
Leftist think tanks says inflation is driven by profits not wages. Duh.
None of these articles look at margins but at prices (and profits) - I wish people would understand the basics of economics.
If prices in the stuff you buy (gas) goes up, your revenue goes up, your profits go up, but your margin (depending on variable costs) might be the same (you don't change anything in running your business).
Or prices go up because you increase prices because of demand (margin increases, profits go up).
Or you increase prices because everyone increases prices (margin goes up).
There are very different models for why prices (and profits go) up.
We should talk about what happens, not "prices are going up", this is like saying "the sun goes up every morning", yes, some kind of understanding, but a very limited on why the sun "goes up" every morning.
So the key question is what allows Australian companies to raise prices and improve profit margins in this situation? It could be monopoly or insufficient competition.
It's not necessary. It could also be due to government intervention, accidents (like pandemic randomly disrupting some supply chains), or even illegal behavior (like monopoly through mafia).
> The Australia Institute is a left-wing public policy think tank...
This is the only conclusion this organization could ever be expected to reach.
In any case inflationary environments tend to be good for profits, because production takes place over time. Inputs were purchased at a lower price level than that under which final goods and services are sold.
Not a credible source of information. I invite anyone who disagrees to read the actual "report". It's anti-capitalist propaganda. I have no problem with criticisms of capitalism based on facts.
The cause of inflation is not a mystery.
Overall people accumulated record savings during the pandemic and spent it.
‘Damn lot of money’: How households plan to spend their pandemic savings
It's unbelievably pathetic how smart people can be easily duped as long as it fits their narrative. Yeah, it's the same crowd that feels superior over QAnons
So you mean to say everyone has an agenda to cross? Which, by the way, also means that you have an agenda to cross too. "Anti-anti-corporation guy makes anti-anti-corporation comment: Reddit/HN Pitchfork"
I posted this because I found it interesting (and especially how HN would react to it), and not because I necessarily agree with it. Especially because I have a 100% disconnect from Australia except that I find Kangaroos funny. I only have a very narrow knowledge about the political climate and monetary policies in Australia.
There are many different opinions in the comments, they are worth checking out. I certainly learned a few new things. If you had a bad day, just take a step back.
Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation, regardless of the source. When inflation is actually driven by consumers having too much money, fine, go for it. But when its driven by external factors all you are doing is causing misery and maybe adding fuel to the fire as people already maxed out buying essentials are in fact going to seek (require) higher salaries when you add to their cost of living.