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Inflation is up because gas prices are up. Gas prices go down, and you'd expect prices to fall. Nope!
Any time I shop at a grocery store or am shell-shocked by restaurant prices, I ask myself: Is everyone raising prices because everybody else is raising prices, whether it's necessary or not? And that goes for services and any number of other products. There's no products out there that are inflation-proof? Or is this just greed at work?
I'm old enough to remember price controls during the high inflationary period of the early 70's, but no mention of price controls today to control possible greed.
What do you think?
The answer is a bit complicated, and John Kenneth Galbraith explained it imperfectly but best. The economy has three basic sectors, competitive (such as farmers) where sellers have no control over their pricing, oligoplistic, where there are multiple but not unlimited players, and monopolies, such as utilities, which are heavily regulated. The theory behind price controls in 1971-3 (besides ensuring Nixon's massive re-election) was that a large amount of the economy was dominated by oligopolies or monopolies. This turned out to be less true than believed. When prices are controlled but the "market price" is lower than the ceiling, everyone is happy. This was how the world was in 1971 and 1972. On January 11, 1973 Nixon decontrolled most prices and inflation soared almost immediately. The theory was that the coming end of the Vietnam War would make this temporary. It didn't work out that way. During the period March-May 1973 Nixon slammed controls back onto petroleum, which led to immediate "spot" shortages. Stations were allocated based on prior year's sales, which meant that they had to reduce hours or limit sales in order not to run out of fuel by the end of a month. Also, stations began pricing to the last 1/10 of a cent that they could. That meant, for example, at the station our family frequented the price of regular went from $0.399 to $0.410 when the increases started. Those spot shortages eased by late August 1973, only to come back much worse when the Arabs announced the "oil embargo." The major companies then returned to allocations (all of them in November 1973, a few were allocating more than 100% in September and October 1973). Lines and chaos suddenly erupted.
When the ceiling prices eventually exceeded the new, high market prices in March 1974 or so, at between $0.55 and $0.65 a gallon, the lines vanished, and stations could buy as much as they needed from their suppliers.
In other words, believe it or not, petroleum turned out to be competitive, not a monopoly or oligopoly. That is why when Reagan abolished all controls in January 1981, prices, after a short rise, tumbled. As sone may remember there was a shorter period, from November 1978 to July 1979, that acted like March 1973-March 1974, but I am getting tired of typing. This new constraint upon prices worked its way upstream to oil producers, leading to the public collapse of what was always a highly illusory OPEC. I am typing this from memory but part of my source is a Rand Corporation study (link).
Quote:
Originally Posted by djmilf
The Invisible Hand of the Free Market moves at different speeds for different things.
The old saw "gas prices shoot up like rockets but fall down like feathers" comes to mind.
Vendors are quick to pass on the increased expense of the goods they sell, but slow to pass on the savings when said expenses diminish.
To some extent this behavior is forced. If prices rise and the old inventory is sold at old prices, the retailer or gas station operator can't afford to restock. If prices fall, the only risk in not cutting prices is that their competitors will cut first. This is a very short-term problem, which is why gas prices fall and rise in tandem.
Quote:
Originally Posted by Mike from back east
Without smoking-gun evidence we can't know for sure if companies jack up prices 'just because' others are, but it can sure seem like it. My opinion is that it was awful easy for firms to claim "supply chain" issues to raise prices.
Hard to prove if price hikes were/are necessary or unnecessary. Corporate profits are still strong, and we'll get info in the next several weeks as major firms start to report their quarterly and annual economic data.
In order for this to be a "great debate" (and remain an open thread) we have to have more than just griping about prices.
There is an active spot market. Here's how I track it (link). In my area, New York (yes, "back east") when I add about $.80 it gets me the Costco price about ten days out. Adding $1.00 gets me the street price in competitive "gasoline alleys."
Quote:
Originally Posted by phetaroi
This is only anecdotal, but the whole supply chain thing, while definitely valid in many cases back during the height of the covid epidemic, has become an excuse still used by some grocery stores. I complained at our local Krogers (Frys) about empty shelves where certain products should have been, and multiple times was told it was "supply chain issues". Only problem was that the local Albertson's/Safeway store usually had the same product and no supply chain issues, and three times I called specific food production companies and asked them if they were experiencing supply chain issues, and each time they said no, that they were shipping their products out at a regular pace.
It's also credit issues. Supermarket chains don't enjoy the best credit ranking (think A&P) and sometimes suppliers are a bit cranky about selling if the payments run behind. Ditto retailers generally. The gasoline business is generally CBD.
In the end, the most important thing is what did not happen. We lost 1,000,000 people due to Covid. We were on track to lose another 3,000,000 if we did nothing at all. The money spent pales in comparison to that.
It really wasn't clear what to do in the beginning. The President's best course of action was to rely on agencies like CDC for advice.
You make mistakes. You learn from them. You try not repeat them.
I disagree that the stimulus money should not have been given. PPP kept thousands of small businesses on their feet. Stimulus checks and enhanced unemployment benefits kept many people from suffering utter destitution. I assume this is what you referencing with the "$5 trillion helicopter drop".
Some argue "well it should have been more fine-tuned". This type of attitude fails to understand politics. Policy isn't made by college professors trained in years of economics and statistics. Its made by people who have to stand for election every two, four, or six years and have constituents who need help in an emergency. Had we tried to fine-tune everything no bill would ever have passed Congress.
Life is a dance that you learn as you go.
I agree with you completely.
It's easy to criticize the government when you have a once in a century event and we don't have all the answers. Sometimes life is a learn-by-doing experience, no matter how much that concept bothers us. I applaud the efforts made by non-xxxx government officials.
The blame here is being placed on the rising interest rates. But a lot of that has been a normalisation after the record low rates during Covid.
Our inflation is currently still around 5% but dropping. The media and politicians never stop talking about a cost of living crisis. Certainly an issue for some people but definitely not all.
One thing I notice online is that restaurant prices in the US do seem very high. At least double what we would pay (taking into account taxes and tips and exchange rate) Daughter just returned from Canada and found it much the same as here and other daughter was in Japan, where it was really cheap.
I noticed that some grocery items have gone up fifty percent! Honestly, I think that's sort of ridiculous. Justify it any way you want, but it's too much. I think those companies are probably often making record profits.
Yep. They hear inflation and jack prices way past the level of the actual inflation of the raw materials to manufacture the goods they sell. When materials fall, they maintain their higher prices and pocket huge profits.
Grocers / suppliers have recorded some pretty heft profits over the past few years, and until there is competitive pricing 'wars' they'll continue to see these profits.
Conagra Brands—one of the largest consumer packaged goods companies in the U.S.—announced that it had posted a nearly 60% year-over-year profit increase between December 2022 and February 2023.
At Kraft-Heinz, the multinational food company that makes Oscar Mayer, Jell-O, and Kool Aid, profits for the quarter ending at the end of 2022 were up nearly 450%, compared to the prior year, at $887 million. Tyson Foods, the largest meat company in the U.S., more than doubled its profits between the first quarters of 2021 and 2022. And General Mills, which owns Kix, Trix, and Chex among other recognizable cereal labels, saw its fourth quarter profits last year rise 97% compared to the previous quarter. General Mills has raised prices five times since 2021 and indicated last month that another price hike could be coming soon.
I can't remember where and when I read this, but there was an article that said (and I paraphrase) that grocers/suppliers are making hay while they can to record profits, trying to build balance sheets from prior poor years. I know currently a lot of people are 'down shopping'- not buying brand names and shopping at more bargain centric chains. Dollar General, Costco, Wal-Mart.. If that pace accelerates I'd imagine other retailers will need to follow suit.
In the end, the most important thing is what did not happen. We lost 1,000,000 people due to Covid. We were on track to lose another 3,000,000 if we did nothing at all. The money spent pales in comparison to that.
It really wasn't clear what to do in the beginning. The President's best course of action was to rely on agencies like CDC for advice.
You make mistakes. You learn from them. You try not repeat them.
I disagree that the stimulus money should not have been given. PPP kept thousands of small businesses on their feet. Stimulus checks and enhanced unemployment benefits kept many people from suffering utter destitution. I assume this is what you referencing with the "$5 trillion helicopter drop".
Some argue "well it should have been more fine-tuned". This type of attitude fails to understand politics. Policy isn't made by college professors trained in years of economics and statistics. Its made by people who have to stand for election every two, four, or six years and have constituents who need help in an emergency. Had we tried to fine-tune everything no bill would ever have passed Congress.
Life is a dance that you learn as you go.
I agree that there needed to be immediate action in the face of a novel virus, but the stimulus response was utterly irresponsible. Basically manufacturing was shut down worldwide, then you pump trillions of dollars into the system. What did we end up with? Too much money chasing too few goods = ^ price pressure (inflation).
Instead of targeting severely impacted industries they pumped money to everyone. PPP kept some small businesses afloat, sure, but they opened it up to churches, non-profits etc.. I mean I can understand a non-profit like a hospital- industries that are considered critical, but the mega-giant churches? The Sierra Club? Come on. The COVID EIDL loan program was also rife with abuse and fraud.
I gagged when I saw how much our local parish received in PPP funds. I equally gagged when the politicos caved to the Farm lobby and made the PPP loan for farmers based on the gross income and not their net. So a schedule C farmer, with no profit of record got $20,833. Basically a giveaway.
In my opinion it would have been better to think it through and been more targeted. I was a proponent for block grants to states to establish their own 'rescue' programs based on their needs, not tossing bails of cash from railroad cars across the country.
I haven't flown since 12/22/17 and was thinking of going to San Diego. I was shell-shocked at the price increases. $569 RT from Tucson to San Diego???? I realize Tucson is not a major hub, but still!
I got spoiled living in Las Vegas for 22 years, the cheap fares to anywhere in the country. I used to take advantage of their occasional $69RT fare to L.A. and $98RT to San Diego and $88RT to San Francisco. I knew I'd be spending more by moving to Tucson 5 years ago, but I refuse to pay these new rates. I can rent a car for $221 for 3 days, so I'll drive instead.
And like food prices, they say: Higher gas prices, higher prices, but when the gas prices go down, where are the cheaper prices?
In the end, the most important thing is what did not happen. We lost 1,000,000 people due to Covid. We were on track to lose another 3,000,000 if we did nothing at all. The money spent pales in comparison to that.
It really wasn't clear what to do in the beginning. The President's best course of action was to rely on agencies like CDC for advice.
You make mistakes. You learn from them. You try not repeat them.
I disagree that the stimulus money should not have been given. PPP kept thousands of small businesses on their feet. Stimulus checks and enhanced unemployment benefits kept many people from suffering utter destitution. I assume this is what you referencing with the "$5 trillion helicopter drop".
Some argue "well it should have been more fine-tuned". This type of attitude fails to understand politics. Policy isn't made by college professors trained in years of economics and statistics. Its made by people who have to stand for election every two, four, or six years and have constituents who need help in an emergency. Had we tried to fine-tune everything no bill would ever have passed Congress.
Life is a dance that you learn as you go.
You argue from emotion rather than data. Your emotions are your own and valid, of course; perhaps you lost a loved one in the pandemic. But we must put emotion aside when analyzing the economics of governmental actions.
"A single death is a tragedy; a million deaths is a statistic."
You say we lost a million people due to COVID, but that of course is highly misleading because many of those deaths would have occurred anyway if there never were a pandemic in the first place. Some would have died of "old age", or cancer, or traffic accidents or work-related fatalities or suicide or being murder victims or being being mugged or even hit by lightening. So what matters is excess deaths, not total deaths. Estimates range from about 40% to 60% would have occurred anyway.
And no, we were not on track to lose another 3,000,000. Once the University College London models were corrected, we know that Covid was nowhere near as deadly as originally thought, and of course a large fraction of deaths occurred among the aged who were no longer contributing to GDP.
The Value of a Statistical Life.
In economics we estimate The Value of a Statistical Life (VSL) in order to quantify the benefit of avoiding a fatality. The US government produces many such estimates from varying departments - the EPA estimates it one way, the FDA another, the USDA another, the DOT another, etc. There are reasons the various governmental departments estimate it differently. Here are some of the estimates used (from low to high) for prior years by the US government:
The VSL estimate is used by regulators in many areas of government. Here's a highly simplified illustrative example:
A regulator may estimate the number of deaths that could be avoided if only a safety feature were implemented
That regulator will also estimate the costs to implement that safety feature (some mistakenly view this cost as being borne by industry; economists know it is always borne by the public)
Then multiply the estimated number of fatalities that could be avoided by the VSL
Then compare the estimated costs to the estimated benefits.
The key learning is it does not make any sense to eliminate all preventable deaths. It is perfectly acceptable and indeed highly desirable to allow some deaths in certain circumstances when evaluating the effects on societal welfare as measure by GDP and GDP per capita.
I agree that there needed to be immediate action in the face of a novel virus, but the stimulus response was utterly irresponsible. Basically manufacturing was shut down worldwide, then you pump trillions of dollars into the system. What did we end up with? Too much money chasing too few goods = ^ price pressure (inflation).
Instead of targeting severely impacted industries they pumped money to everyone. PPP kept some small businesses afloat, sure, but they opened it up to churches, non-profits etc.. I mean I can understand a non-profit like a hospital- industries that are considered critical, but the mega-giant churches? The Sierra Club? Come on. The COVID EIDL loan program was also rife with abuse and fraud.
I gagged when I saw how much our local parish received in PPP funds. I equally gagged when the politicos caved to the Farm lobby and made the PPP loan for farmers based on the gross income and not their net. So a schedule C farmer, with no profit of record got $20,833. Basically a giveaway.
In my opinion it would have been better to think it through and been more targeted. I was a proponent for block grants to states to establish their own 'rescue' programs based on their needs, not tossing bails of cash from railroad cars across the country.
Large percentages of people were unable to work as their employers shut down because of the pandemic. Enhanced unemployment benefits, and stimulus checks were all used to keep this population from being destitute. PPP was necessary to keep businesses from failing as well. I've already acknowledged that the effort could have been fine-tuned more than it was. However, it was more important to get Congress to pass a bill than it was to spend six months fighting over the particulars. If some groups got more than they needed that is just the way it was. I love it when economists and college professors scold the political system for being inefficient in terms of carrying out policy. Those groups never have to answer to an often hostile and ignorant electorate.
I knew when these programs were passed it would result in inflation. Its just the price that had to be paid that's all. Temporary inflation that never exceeded a 9% annual rate was an easier price to pay than utter destitution of millions of people that could have resulted in things like food riots.
Finally, the programs were approved by two different administrations under two different political parties. My point here is simply that at the time they were passed, the programs were considered popular and necessary.
Quote:
Originally Posted by moguldreamer
You argue from emotion rather than data. Your emotions are your own and valid, of course; perhaps you lost a loved one in the pandemic. But we must put emotion aside when analyzing the economics of governmental actions.
"A single death is a tragedy; a million deaths is a statistic."
You say we lost a million people due to COVID, but that of course is highly misleading because many of those deaths would have occurred anyway if there never were a pandemic in the first place. Some would have died of "old age", or cancer, or traffic accidents or work-related fatalities or suicide or being murder victims or being being mugged or even hit by lightening. So what matters is excess deaths, not total deaths. Estimates range from about 40% to 60% would have occurred anyway.
And no, we were not on track to lose another 3,000,000. Once the University College London models were corrected, we know that Covid was nowhere near as deadly as originally thought, and of course a large fraction of deaths occurred among the aged who were no longer contributing to GDP.
The Value of a Statistical Life.
In economics we estimate The Value of a Statistical Life (VSL) in order to quantify the benefit of avoiding a fatality. The US government produces many such estimates from varying departments - the EPA estimates it one way, the FDA another, the USDA another, the DOT another, etc. There are reasons the various governmental departments estimate it differently. Here are some of the estimates used (from low to high) for prior years by the US government:
The VSL estimate is used by regulators in many areas of government. Here's a highly simplified illustrative example:
A regulator may estimate the number of deaths that could be avoided if only a safety feature were implemented
That regulator will also estimate the costs to implement that safety feature (some mistakenly view this cost as being borne by industry; economists know it is always borne by the public)
Then multiply the estimated number of fatalities that could be avoided by the VSL
Then compare the estimated costs to the estimated benefits.
The key learning is it does not make any sense to eliminate all preventable deaths. It is perfectly acceptable and indeed highly desirable to allow some deaths in certain circumstances when evaluating the effects on societal welfare as measure by GDP and GDP per capita.
We suffered one million deaths because of Covid 19. Sure, some of the people were elderly or sick and might have died on their own anyway. However, you overlook something: The very reason we have government is to protect the health, the welfare, and the safety of the public. If government cannot do those things there really isn't much point in having government. All of us will die, but the goal is to put it off for as long as we can. I do think cost has to be taken into account when a response to epidemic disease occurs by government. For example, in a bad year, the influenza might kill 30,000 people. This is not enough people to justify a shut down of an entire economy. I would admit that. However, I feel differently when the numbers are 1,000,000 or 3,000,000. That's a lot of people and in my opinion, disease epidemics of that magnitude do justify considerable prevention/amelioration measures by government. Its partly subjective. However, the preservation of human life and limb should be a goal in and of itself.
We lost 400,000 people in World War II. We lost about 150,000 lives in World War I. I won't recite casualties from other conflicts. Suffice it to say, more died from Covid 19 in two years than died from all our nation's wars in the Twentieth Century.
Estimates are that without vaccination that an additional three million American lives would have been lost because of Covid 19. It truly was a national/international crisis.
A Commonwealth Fund study estimates that, through November 2022, COVID-19 vaccines prevented more than 18.5 million US hospitalizations and 3.2 million deaths and saved the country $1.15 trillion.
The modeling study estimated hospitalizations and deaths averted through the end of November 2022, at a time when 80% of the US population had received at least one dose of COVID-19 vaccine.
Approved COVID-19 vaccines have been available in the United States since December of 2020. Since Dec 12, 2020, 82 million infections, 4.8 million hospitalizations, and 798,000 deaths have been reported in the United States.
"Without vaccination the U.S. would have experienced 1.5 times more infections, 3.8 times more hospitalizations, and 4.1 times more deaths," the authors wrote. "These losses would have been accompanied by more than $1 trillion in additional medical costs that were averted because of fewer infections, hospitalizations, and deaths."
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