Pluralistic: Excuseflation (11 Mar 2023)

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An old general store. Instead of a grocer, the counter is manned by an ogrish, top-hatted capitalist caricature, yanking on a lever in the shape of a golden dollar-sign. He holds aloft a carton of eggs, disdainfully, pinched between a gloved thumb and forefinger.

Excuseflation (permalink)

The decision to pass modest sums out to working people to prevent them from starving or losing their homes during the covid lockdowns made the right furious, especially inflation hawks who insist that any improvement in everyday people's material lives will transform America into an amateur revival of Weimar, complete with wheelbarrows full of useless bank-notes.

"Democrats" like Larry Summers – a Clintonite ghoul who is on record as saying that women are biologically incapable of doing science – insisted that preserving workers' living standards was a terrible mistake, only prolonging the inevitable day when they would be shoveled into the furnace that keeps The Economy running.

And indeed, the lockdowns were followed by a series of price rises. Some of these were obviously the result of capacity problems:

Cars got more expensive because panicked car executives canceled their microchip orders. That's a problem, because they redesigned our cars to be mobile surveillance platforms stuffed full of anti-repair digital locks, which means that cars need dozens of chips just to function:

As a result, fully assembled, chipless cars piled up in warehouses around the world, inert and immobile, awaiting the breath of life to be kindled by semiconductors. At one point, car makers even bought up washing machines to shell them for the chips inside, discarding the husk of the machine:

With fewer cars being made, and some cars being scrapped or retired, there was more demand than supply, and car prices rose, temporarily. This is obviously a capacity problem, not a demand problem. Working people don't cause capacity problems. Bosses do: by selling off buffer stocks, eliminating redundancies and safety margins, and chasing lax labor and environmental regulations to the corners of the world, stretching out supply chains across vast distances.

But not all the price rises were temporary, nor could they all be attributed to supply shocks. Reporters who tuned into earnings calls from large, monopolistic packaged goods companies like Colgate-Palmolive, Unilever and Procter and Gamble were amazed to hear CEOs and CFOs boasting about how they were able to use the excuse of inflation to raise prices:

Talk about saying the quiet part out loud! Here's the eminently guillotineable Colgate CEO Noel Wallace: "What we are very good at is pricing." Or the tumbril-ready Kroger CEO Gary Millerchip: "We’ve been very comfortable with our ability to pass on the increases that we’ve seen at this point, and we would expect that to continue to be the case."

Despite the CEOs literally boasting in public about how they were able to raise prices far in excess of any increase in their costs and rake in windfall profits, neoclassic economists kept pushing their perfectly spherical cows of uniform density around on their frictionless planes, insisting that the models predicted that this was impossible, therefore it wasn't happening.

Specifically, establishment economists claimed that since market concentration hadn't increased significantly over two years, that the inflation seen over that point couldn't be blamed on monopolies. But as Hal Singer wrote, that's not how monopolies raise prices: they wait for excuses to price-gouge, and then they use their market power to make us all poorer:

Two thirds of US companies increased their margins over the first two years of the pandemic. Prices didn't go up because poor people overspent their CARES Act money. Inflation wasn't just a matter of supply-shocks. I accuse monopolies, in the economy, with the profiteering:

There is no evidence of a "wage-price spiral." Wage growth peaked in June at 4.8% and by October it had declined to 4.2%, making real wages 2.3% lower than they were in Oct 2021. As Joseph Stiglitz and Regmi Ira wrote for the Roosevelt Institute last December, "Weak unions, globalization, and changes in the structure of the economy" mean that workers generally can't demand inflation-tracking wage increases:

Stiglitz and Ira lay out five causes of inflation: energy and food spikes, changes in what we want, supply interruptions, higher rents – and price-gouging (notably, none of these can be fixed by jacking up the interest rate at the central bank).

As the Stiglitz/Ira list of five causes shows, it's not just price-fixing that causes prices to go up – but every one of these causes feeds into price-fixing, thanks to a phenomenon called excuseflation, which Tracy Alloway and Joe Weisenthal discuss in the latest OddLots podcast:

In the accompanying Bloomberg article, Alloway and Weisenthal run down innumerable examples in which executives boast about how real crises – war, climate events, blockages in the Suez Canal, bird flu – provide ready-made excuses for raising prices and then keeping them high:

Take Ken Jarosch, owner of Chicago's Jarosch Bakery, who told investors, "Whether it’s rye flour, or bird flu that impacts eggs, when it makes national news, just running a business, it’s an opportunity to increase the prices without getting a whole bunch of complaining from the customers":

The analyst Samuel Rines describes this as a "Price Over Volume" (POV) strategy: companies know that if they raise prices, they'll sell fewer goods, because many working people won't be able to afford their products. But – thanks to inequality – these merchants can make up the losses by extracting much larger sums from the professional and managerial class.

Rines singles out several large American companies as hotspots of POV: Pepsi, Home Depot, and even discounters like Walmart and Dollar Tree. POV makes everyone worse off: low-income people are priced out of the market, and high-income people are ripped off. Only the shareholders benefit.

Take Pepsi: after the Russian invasion of Ukraine, Pepsi pulled out of Russia. But its profits remained steady, because Pepsi was able to raise its prices in the rest of the world – blaming the war, of course. Rines calls this PPP: Pepsi Pricing Power. The pitchfork-friendly Pepsi CEO Ramon Laguarta describes this as "trying to create brands that can stand for higher value to consumers and consumers are willing to pay more for our brands."

(Why don't customers switch to Coke? It turns out that duopolies like Pepsi-Coke are able to tacitly collude on pricing, and Coke is also raking in massive profits.)

UMass Amherst economists Isabella Weber and Evan Wasner call this "sellers inflation," documenting how "overlapping emergencies" allow companies to raise prices far in excess of their cost increases, and then keep them high even when the emergencies end:

Take Wingstop, whose chicken prices have shot up by 125% in a year, with "zero pushback from the consumer." Wholesale chicken prices are down 50%, but Wingstop's prices are still high, and its stock is up 250% from its Covid crisis low.

The power of excuseflation is that it allows apologists to, well, make excuses. When egg prices shot up in January, Big Egg was able to blame it all on bird-flu. There really was a bird-flu problem, but there's also a single company that sells all the eggs: Cal-Maine foods, a monopolist that increased its margins by 110% in a single year. Wholesale prices stabilized, but prices kept going up, and CALM's share price climbed by 47%:

CALM owns nearly every egg brand you've ever heard of: Farmhouse Eggs, Sunups, Sunny Meadow, Egg-Land’s Best and Land O’ Lakes eggs and more. When all those brands' prices shot up – conventional eggs hit $2.88/doz in Jan, a 100% increase over Jan 2022 – that was just one company raising prices.

If the price spikes were caused solely by bird flu, then you'd expect margins to fall, not rise. But bird-flu was the excuse for eggflation, not the cause.

Hey look at this (permalink)

A Wayback Machine banner.

This day in history (permalink)

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Colophon (permalink)

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