”Laws control the lesser man... Right conduct controls the greater one.”— Mark Twain
Enter a new economic terminology (as if we didn’t have enough new trends to follow already). They call it “Greed-flation.”
A group of rogue scholars is claiming inflation is sticky and staying around for the long run not because of some underlying monetary principle of instability, but because of corporate conspiracy.
They point to “rising profits” as the culprit. Simply put: Big corporations want more money on their quarterly reports, so they keep their prices higher artificially… and then blame the climate of inflation for persistently high prices.
Sounds like the plot to some super surrealist Steven Soderbergh flick. Or the ultimate gaslight.
So there it is… an economist arguing for price controls, just like they did in the ‘70s. Cray.
Need we remind you that in the decade of double bridge glasses and serial killers, economists discussed price controls primarily due to the significant economic challenges faced by many countries during that period, not unlike how things are going today.
Two key factors that contributed to this discussion were rising inflation (duh) and perturbing energy crises.
Rapid increases in the prices of goods and services eroded purchasing power and disrupted economic stability. To combat inflation, governments and policymakers explored various measures, including price controls.
Price controls involve setting maximum or minimum prices for specific goods or services, typically below or above their equilibrium levels determined by market forces.
By imposing price controls, authorities aimed to restrain price increases and protect consumers from excessive price hikes.
The global oil crisis of the 1970s also played a crucial role in shaping economic discussions around price controls. OPEC implemented an oil embargo in response to geopolitical tensions in 1973, leading to an almost quadrupling of oil prices… not to mention lines down the street and around the corner at the local Shell.
We might tack on conflicts between wages and prices to the issues of the sepia-toned decade… though if we are comparing the present state of things, wages are actually looking pretty good right now, relatively. New data by Mercer shows that U.S. employers reported 2023 annual merit increases averaging 3.8 percent, while total compensation—which includes merit awards as well as all other types of compensation increases impacting base pay, such as promotional, cost-of-living and minimum wage—increased by 4.1 percent.
That means compensation increases are the largest they’ve been since the GFC in 2008. Nice.
It is important to note that economists have had varying opinions on the effectiveness and potential drawbacks of price controls. Critics argue that price controls can lead to unintended consequences such as distortions in market functioning, reduced supply, black markets, and resource misallocation. These concerns reflect the complex trade-offs associated with implementing price controls and the challenges of striking a balance between stability, affordability, and market efficiency.
Even so, the argument for “greedflation” went mainstream this year, as consumer giants like PepsiCo and Procter & Gamble reported that they did, in fact, keep jacking up prices beyond any growth in their costs.
Also, get this: Researchers at the Kansas City Fed recently found that corporate profits could account for almost 60% of inflation in 2021. But, according to National Public Radio, the lead author on the study, Andrew Glover, doesn’t believe that companies were raising prices to gouge customers. Instead, they were doing it in anticipation of their costs going up in the future.
So, what’s the solution? Aren’t we just at this standstill again and again, waiting in line at the DMV? Every time we inch closer the line gets longer… And then the woman behind the glass puts up her “Back in 5 minutes” lunch break sign. We groan, all together now.
The scholars argue that hiking interest rates is not the best way to lower the cost of living since it entails people losing their jobs and sabotaging housing construction projects.
This is the Powell Paradox, the tale of conflicting data points. It’s also what the Fed has been acting on for the last two years with its historic rate increases.
But are government price controls on key goods like energy and taxes really any better? Are we ready to hand our full confidences to the old men on the Hill? Is that any better than the Men in Grey Suits?
Follow your own bliss,
The Wiggin Sessions
P.S. Tomorrow, a look at what Bill Bonner calls “smug complacency”—or the smirk world bankers take on when they don’t have to worry about the ramifications of debt and The Demise of the Dollar.
Addison Wiggin is an American writer, publisher, and filmmaker. He was the founder of Agora Financial and publisher for 18 years. An acclaimed New York Times best-selling author, his books include: Financial Reckoning Day, Empire of Debt, The Demise of the Dollar, and The Little Book of the Shrinking Dollar. Addison is also the writer and executive producer of the documentary I.O.U.S.A., an exposé on the national debt, shortlisted for an Academy Award in 2008. He lives in Baltimore, Maryland with his family. Addison started his latest project, The Wiggin Sessions, powered by Consilience Financial, in March 2020. He films from a homegrown studio in his basement.