By graja @Adobe Stock
A Lot of Baloney
Sellers everywhere would like to raise prices. So why don’t they? Simple. The Free Market puts breaks on their ability to do so.
Greedy corporations are often the poster child for inflation. Does that mean that when inflation slows, corporations are no longer greedy? Well, that make no sense to me, either.
Getting Serious about Food Costs: Seriously
Here’s a serious idea.
- First let’s legislate against “price gouging.”
- Then let’s award the Federal trade Commission extra power to investigate food prices and impose penalties on manufacturers and retailers who are judged to have put up prices unfairly.
Kamala Harris has a big idea: let’s end Greedflation by legislating against price gouging (Greedflation) on food.
Well, Veep Harris, that sounds good, especially for those struggling at their local A&P to buy food to feed their clan. Oh right, they also are facing soring energy prices, so now they must decide which fuel is more important: fuel to keep warm on or fuel to keep them going.
At best, Harris’s popular idea would have no impact on grocery prices and might even make the problem worse, argues Scott Lincicome at The Cato Institute. What is especially unfortunate is that it would distract from all the federal policy changes that could reduce food prices.
Somewhere between thin and non-existent is the idea that price gouging was responsible for the post-pandemic spike in food prices, continues Mr. Lincicome. Where did the idea come from that corporate profiting, rather than supply and demand, is to blame for America’s current inflationary moment? The “Greedflation” concept has not just stuck around but … accelerated, and warrants more discussion.
Think of markets as an auction: sellers seek the highest price possible, while buyers want the lowest. As long as at least two buyers compete for an item, the price will go higher. Only one buyer will have the desire and money to buy it. If prices go too high, the buyer many opt out and bid on another item.
From the New York Federal Reserve:
Retail food inflation was mainly driven by “much higher food commodity prices and large increases in wages for grocery store workers,” while profits at grocers and food manufacturers “haven’t been important.”
From the Kansas City Fed:
Rising food prices were overwhelmingly concentrated in processed foods, the prices of which are more sensitive to (and thus driven by) labor-market tightness and wage increases.
Compared to a year earlier, food prices climbed 2.1% in May, down from April, when they rose 2.2%.
Overall food prices increased 0.1% from the prior month. That was slightly up compared to April, when food prices were flat. Grocery prices were flat in May after falling 0.2% in April. The cost of dining out rose 0.4% after climbing 0.3% in April.
Economists expect food price increases to slow in the coming months.
Still, some consumers say they are struggling to deal with high grocery bills. Although food price gains have cooled, prices remain much higher than they were several years ago.
Get Tough on Greedflation
From the Spectator: Kamala’s big idea? She wants to legislate against “price gouging.”
Kamala would award the Federal Trade Commission extra power to investigate food prices, and to impose penalties on manufacturers and retailers who are judged to have put up prices unfairly. She will rail against “greedflation” and promise that her administration will get tough.
A Seriously Ridiculous Idea
Scott, can you explain to readers why price legislation is harebrained?
To start with, the government never “knows” what the right price for anything happens to be. Supply may have changed, competitors may have joined or left the market. Or demand may have surged. Who knows how much a hot dog or box of cookies should cost?
Next, we have hundreds of years of economic history to tell us that controlling prices has a 100% record of creating shortages and supply bottlenecks. There is no reason to expect it to be any different this time around.
Largest Peacetime Deficit
… finally, (K. Harris) conveniently ignores the fact that running one of the largest deficits in peacetime history may have a lot more to do with stoking inflation than “greedy” corporate bosses.
Historical perspective is important, but it can disguise fundamentals about higher prices and corporate profits, especially during the pandemic, warns Mr. Lincicome.
Profit-maximizing firms could only raise prices (and earn higher profits) because consumers let them; consumers let them because they were flush with cash; and consumers were flush with cash mainly because of government policy.
How about the consumer, Scott? The role the consumer (demand) plays is not new news.
It’s a standard part of mainstream microeconomics and frequently mentioned in economic analyses and business reporting—even for essentials like food. For example, a Kansas City Fed report from late last year found that consumer spending and behavior (eating more at home, and then shifting back)—not corporate profiteering—were the primary drivers of higher U.S. food prices during the post-pandemic recovery.
Household consumption of, for example, meat (among other products), put upward pressure on food prices.
Thus, contrary to the spin from the White House and others, U.S. meat prices didn’t rise because of some sort of Big Meat pricing conspiracy; they rose because suddenly cash-rich consumers wanted to buy more meat.
The main drivers of that surge in demand (spending) are similarly unsurprising and well-understood today: highly expansionary U.S. fiscal and monetary policy enacted during 2020 and 2021. On the fiscal side, federal spending as a share of GDP skyrocketed in 2020, and will remain elevated—even after the current debt limit deal is enacted.
On the fiscal side, federal spending as a share of GDP skyrocketed in 2020, and will remain elevated—even after the current debt limit deal is enacted.
The WSJ Weighs In:
Imagine if there were suddenly fewer sellers, and bidders found themselves with more cash. There would be fewer alternatives, and thus more bidders vying for the same items. At the same time, each bidder would have more money and make higher offers, driving up prices. That’s what happened during Covid. In response to the pandemic, governments worldwide instituted lockdowns, disrupting supply chains, while the U.S. government passed large spending bills that the Federal Reserve had to accommodate by increasing the money supply. This money was available for consumers to bid up prices: more money chasing fewer goods.
Advises Scott: a good point to remember, “Corporate greed primarily affects relative goods’ prices, not the overall price level and inflation. Loose money driving excess spending does that.”
It’d be nice if the media also remembered it.
Taming Inflation
Wage and price controls create shortages and fuel ever more inflation by disrupting the pricing signals that match supply with demand.
Only free markets, reminds the WSJ, coupled with good fiscal and monetary policies, will provide us with the products we want while taming inflation.
Inflation: Too much money chasing too few goods.
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