Is Corporate Greed Causing Inflation?

According to a federal study, the answer is no. I find that fairly interesting after hearing many people complain about corporate gouging, including people on here.

I know I have raised my rates a fair amount in the past 4 years. A large chunk of that has passed straight through to my employees. They have received 15%-20% in raises over the past 4 years in an effort to keep them within striking distance of inflation. 

At the same time, material prices have skyrocketed across the board and those also drive my prices. A door operator I was paying $800 in 2020 is now $1100. 

Have your industry prices jumped on the supply and sales side? Are you seeing any of that increase in your paycheck? 

Discuss.

Let's try to stick to the business side of this and not the political side. 

Here are a couple of other articles from either side of the spectrum. 

CNN: Think corporate greed is the leading cause of inflation? Think again

Fox: Corporate greed is not to blame for high inflation, SF Fed says

I'll try to make just one comment: most headlines on this subject tend to yell about profits rather than profit margins, because the raw dollar number always generates more outrage.

In reply to Duke :

Edit: They do like to muddy the waters.

My profits are up even though my margins are the same. That's just math. 30% of 200 > 30% of 100.

It's also why most of my increases went to my employees. The profit increase was my pay raise. 

Competition ensures that corporate greed will never be an issue.  If one company's prices are too high, their competitors will take their business at a lower price.

In the unlikely event that government fails at one of its most important functions--that is, preventing the formation of monopolies--then we'll have a problem. 

Hmmmm.

It seems pretty clear to me that it isn't. First off, greed is nothing new. Why would corporations just decide to start charging more a few years ago when they could have done that at any time?

Secondly, anyone who has studied basic economics knows that when you increase the supply of something (in this case, currency), it lowers the value of that thing. That happened when years of low interest rates and high government spending were topped off by the absolutely massive Covid stimulus packages. The latter is what really kicked off this latest round of inflation.

Please note that this is not a partisan statement, government spending has been increasing for decades, regardless of who is in power, and the stimulus packages were widely supported, as well.

There is one part of corporate culture that is making inflation worse, though- the pay gap between the people who do the work and the people who tell them to do the work. 
 

Management is easily keeping ahead of inflation but workers don't. And the management compensation isn't part of profits, but part of costs. So it could be hidden in lower profit statements. 
 

This has been going on for decades and has gotten wider over time, so it is a factor in the economic issues. 

In reply to Tom_Spangler (Forum Supporter) :

IMHO, the more frustrating part of the covid relief packages is that they could have been easily funded. Many people kept working, and some even made huuuuuge profits thanks to covid shifting the supply and demand markets. 

Funding it like that would not have made new money, but kept people roughly employed as before. 

One of the primary issues with the Greed Theory is that it essentially requires a rather coordinated conspiracy, which, with competing companies, seems rather unlikely (and a rather obvious opportunity for one to take advantage and get a jump on the others)

The company I work for sucked up the price increases at first (good margins) but eventually did have to raise prices.

McDonalds seems to be the most obvious ones hit by cost increases.  I am not entirely sure why, maybe running very low margins previously (e.g. dollar menu is almost a loss leader) or their supply chain was uniquely hit.  I know here in CA, the mandatory minimum wage for fast food chains ($20) certainly is hitting them hard.  It's kind of a local tariff of chain restaurants to support small restaurants (not sure if that how it will work out).

Prices have gone up both for what we're buying (and selling) in the industry and for what I'm buying in the grocery store.

Wages have not improved at the same rate.

We live in this world. We were headed this way due to demographics anyways, but the pandemic made a great fence hidden in a smoke-screen, to speed up the process. The only surprise is that anyone would be surprised.

What used to be a society running on symbiotic principles now works on a predatory/parasitic paradigm.  Since it appears that we are going to end the "middle class" concept of society after this current generation, it is crucial to the wealth consolidators to extract as much as they can from the still-existing baby-boomers and those to whom they are passing their money.

So yeah. Corporate greed is definitely a leading cause of "inflation".

alfadriver said:

There is one part of corporate culture that is making inflation worse, though- the pay gap between the people who do the work and the people who tell them to do the work. 
 

Management is easily keeping ahead of inflation but workers don't. And the management compensation isn't part of profits, but part of costs. So it could be hidden in lower profit statements. 
 

This has been going on for decades and has gotten wider over time, so it is a factor in the economic issues. 

Using Ford as an example. CEO compensation was $26,000,000.00 for 2023. If you took 100% of that compensation and divided it between every employee that Ford has (177,000), each employee would get another $0.07 per hour. 

I don't think that's going to solve the inflation problem. Or even be noticeable. 

In reply to NOHOME :

One thing that I thought was bad to see when working was the big shift to "shareholder value". Sounds good and all, but the issue that much executive compensation was stocks plus most executives were that for less than 10 years meant all decisions were short term stock price inflation focused vs long term planning. That thinking almost killed Ford while I worked there and it's really hurt large companies like Boeing right now. 
 

It's a large part of the pay gap issue. For both ends of the employees. 

Odd that the SF Federal Bank study looks quite narrowly at markups and doesn't seem to consider profit margins. When you do consider profit margins, the result you get is this:

https://fortune.com/europe/2023/12/08/greedflation-study/

https://www.ippr.org/media-office/revealed-how-powerful-companies-are-amplifying-inflation-through-their-profit-margins

NOHOME said:

What used to be a society running on symbiotic principles now works on a predatory/parasitic paradigm.  Since it appears that we are going to end the "middle class" concept of society after this current generation, it is crucial to the wealth consolidators to extract as much as they can from the still-existing baby-boomers and those to whom they are passing their money.

Current generation? The last generation with widely available access to middle-class living was Gen. X

Toyman! said:

alfadriver said:

There is one part of corporate culture that is making inflation worse, though- the pay gap between the people who do the work and the people who tell them to do the work. 
 

Management is easily keeping ahead of inflation but workers don't. And the management compensation isn't part of profits, but part of costs. So it could be hidden in lower profit statements. 
 

This has been going on for decades and has gotten wider over time, so it is a factor in the economic issues. 

Using Ford as an example. CEO compensation was $26,000,000.00 for 2023. If you took 100% of that compensation and divided it between every employee that Ford has (177,000), each employee would get another $0.07 per hour. 

I don't think that's going to solve the inflation problem. Or even be noticeable. 

 

There are a lot of issues with this, the main one is that CEO pay in particular is just the visible tip of the executive & upper management pay iceberg. If you look at the whole iceberg of top 5~9% incomes, you'll find all the money that's missing. Productivity has increased enough now that if the share of worker pay was similar to the '70s, people would only need to work 3 days a week to make the same that they make in 5 right now. Or they could work 5 days a week and make 40% more than they do right now. Another way of looking at that is that everyone who works 5 days a week now is basically spending 2 work days making executives and upper management relatively wealthier than they were in the '70s.

In reply to Toyman! :

It is not the upper management that is the dead-weight so much as it is the whole concept of "Stockholders" and stock-price engineering. Stockholders contribute nothing  of value to a company and yet are entitled to the cream of whatever profits might show up.  

The stimulus checks written during the stupid times were largely responsible for this inflation.  I got checks with two different presidents' names on them, so there's blame to go around.  Now it's just using that as an excuse.  I did see the other day that Target was reportedly cutting prices on goods, in response to slowing sales.  

The most recent inflation numbers seem to indicate that goods pricing is stabilizing, but services are still going up.  Which tracks with my own observations- an 8 foot 2x4 is still around 5 bucks, and has been since lumber sort of stabilized around mid 2022, but hiring someone to hammer that 2x4 into a building is getting more expensive.  This seems to indicate a shortage of people willing to do certain jobs.  Supply, meet demand.  

EDIT:  Forgot to add, interest rates being elevated compared to the past 10 years makes money more expensive, which makes everything more expensive.  Oddly, though, while expensive mortgages ought to drive down home prices, the reverse seems to be happening.  It's got similarities to what happens when inflation gets so bad that everyone starts buying as much as they can today, out of fear it will be more expensive tomorrow.  Fear-induced economic actions never end well.  

In reply to GameboyRMH :

Neither of those discuss margins, only total profits. You can not have an intelligent discussion without discussing profits as a percentage of revenue. 

My profits are up around 40% over the past 4 years because my gross revenue is up almost 100%. My margins have not changed. 

GameboyRMH said:

Toyman! said:

alfadriver said:

There is one part of corporate culture that is making inflation worse, though- the pay gap between the people who do the work and the people who tell them to do the work. 
 

Management is easily keeping ahead of inflation but workers don't. And the management compensation isn't part of profits, but part of costs. So it could be hidden in lower profit statements. 
 

This has been going on for decades and has gotten wider over time, so it is a factor in the economic issues. 

Using Ford as an example. CEO compensation was $26,000,000.00 for 2023. If you took 100% of that compensation and divided it between every employee that Ford has (177,000), each employee would get another $0.07 per hour. 

I don't think that's going to solve the inflation problem. Or even be noticeable. 

 

There are a lot of issues with this, the main one is that CEO pay in particular is just the visible tip of the executive & upper management pay iceberg. If you look at the whole iceberg of top 5~9% incomes, you'll find all the money that's missing. Productivity has increased enough now that if the share of worker pay was similar to the '70s, people would only need to work 3 days a week to make the same that they make in 5 right now. Or they could work 5 days a week and make 40% more than they do right now. Another way of looking at that is that everyone who works 5 days a week now is basically spending 2 work days making executives and upper management relatively wealthier than they were in the '70s.

For reference, if you google "Ford Top Execs and then "view all leadership" on the corporate.ford.com website, it gives you 9 pages of executives at 10 people per page.

So.  Yeah.  Disingenuous argument is disingenuous 

In reply to Toyman! :

They both link to the same study and extensively discuss margins, I'm guessing you didn't click the links.

Edit: A very relevant excerpt:

A rise in nominal profits need not imply that firms have raised their profit margins, the report says; for many it is the result of passing on their higher costs to consumers, maintaining the same degree of profitability (as a percentage of nominal sales) - while squeezed wage earners across the economy took losses.

But there is evidence that some stock market-listed firms not only protected their margins but also increased them, not only passing inflation on but further amplifying it.

The market power held by a small number of companies can be a significant factor in profitability, the research found. In the UK, 90 per cent of nominal profit increases during this period occurred in only 11 per cent of publicly listed firms. Many other companies experienced a reduction in profits.

Researchers found that if companies accepted a hit to their profit margins – similar to that endured by wage earners – and stopped trying to fully pass on their higher costs to others - then ‘pass the parcel’ inflation would decrease. Such inflation accounted for about three-quarters of UK inflation at the end of 2022, according to Bank of England research.

NOHOME said:

...Stockholders contribute nothing  of value to a company....

So, if you remove all the stock holders from a company (taking their money with them of course), it does not affect the value of a company?

That's a bit like saying a mortgage company contributes nothing to someone owning a house.

In reply to NOHOME :

Without stockholders, the company has no access to cash. Without cash, there is no growth. Without growth, there is no company. Ask Sears or Kmart or Red Lobster how things look when their stock value crashes.

Ask Elon what happens when you are the darling of the market. 

GameboyRMH said:

In reply to Toyman! :

They both link to the same study and extensively discuss margins, I'm guessing you didn't click the links.

I read both. Neither one discusses profit margins. Only profit increases. They are not the same. 

Mr_Asa said:

GameboyRMH said:

Toyman! said:

alfadriver said:

There is one part of corporate culture that is making inflation worse, though- the pay gap between the people who do the work and the people who tell them to do the work. 
 

Management is easily keeping ahead of inflation but workers don't. And the management compensation isn't part of profits, but part of costs. So it could be hidden in lower profit statements. 
 

This has been going on for decades and has gotten wider over time, so it is a factor in the economic issues. 

Using Ford as an example. CEO compensation was $26,000,000.00 for 2023. If you took 100% of that compensation and divided it between every employee that Ford has (177,000), each employee would get another $0.07 per hour. 

I don't think that's going to solve the inflation problem. Or even be noticeable. 

 

There are a lot of issues with this, the main one is that CEO pay in particular is just the visible tip of the executive & upper management pay iceberg. If you look at the whole iceberg of top 5~9% incomes, you'll find all the money that's missing. Productivity has increased enough now that if the share of worker pay was similar to the '70s, people would only need to work 3 days a week to make the same that they make in 5 right now. Or they could work 5 days a week and make 40% more than they do right now. Another way of looking at that is that everyone who works 5 days a week now is basically spending 2 work days making executives and upper management relatively wealthier than they were in the '70s.

For reference, if you google "Ford Top Execs and then "view all leadership" on the corporate.ford.com website, it gives you 9 pages of executives at 10 people per page.

So.  Yeah.  Disingenuous argument is disingenuous 

Take the top 5 higest paid of Fords leadership. Add up their total compensation, $79,000,000.00, and disburse it to all of Ford's employees. 

Their total raise will be $0.22/hr. 

Again, not enough to offset inflation or even be noticed.