Economics

[viscousmemories]

Here is a thread for general discussion of economics.

I've been learning a bit about economics lately as part of my immersion into politics (see my caveat) so I thought I'd start a thread for the topic.

Some of the economists or economist adjacent people I've been reading/listening to the most are Richard D. Wolff, Yanis Varoufakis, Mark Fisher, David Graeber, and Leo Panitch. I think most or all of them would say they embrace a Marxist analysis of economics.

Anyway I will start with How the Biden Administration Can Free Americans from Student Debt, by Astra Taylor.

The above is a compelling argument for the Biden admin to pursue radical debt relief at least as substantial as one that he has hinted at (a means-tested cancellation of 10k minimum) but preferably a lot more.

Biden will be taking office amid a daunting public-health and economic crisis; a loudening chorus of experts and elected officials believe that a more ambitious approach to debt relief is needed to stem the suffering.

[Oxymaroon]

I honestly don't think any little fixes will work, post-pandemic. But that's all they'll be able to accomplish.
Too many people are devoted to the capitalist system as they've come to experience is (not the same knowing or understanding), religiously convinced that prosperity is a product of growth; that there is no viable alternative to the boom-and-bust cycles of the stock exchange.
They're open to receiving more help, little perks - but not systemic change.
Even Elizabeth May, who was then our Green Party leader, had the best economic plan and was the most plain-spoken politician in the Canadian election, when asked "What do we need to give up?" answered "Nothing." Completely missed the opportunity to say "Waste."
We have to give up the wastefulness of capitalism, if we want any chance at survival. It's already a long-shot anyway. I believe we can't make the necessary changes until the current system breaks down under its own unsreason.

Here is an author with whom you might not be familiar: Hazel Henderson
https://www.goodreads.com/book/show/...native_Futures
https://www.goodreads.com/book/show/...thical_Markets
On the lighter side, I very much enjoyed JK Galbraith's novel A Tenured Professor, whose economics books,, incidentally, are still relevant.

[viscousmemories]

Thanks Oxy, you're right I wasn't familiar with Hazel Henderson. I'll check out those books. This panel discussion was interesting.

Panel 3 THE MICHAEL BROOKS TRIBUTE SERIES: Mark...

[viscousmemories]

I've learned a little more about economics since I started this thread in late 2020. In addition to watching countless hours of lectures and interviews with economists of varied stripes and reading many articles, I read these books:

• Talking To My Daughter About The Economy or, How Capitalism Works and How it Fails, by Yanis Varoufakis
• Unlearning Marx Why The Soviet Failure Was A Victory for Marx, by Steve Paxton
• Capitalist Realism: Is There No Alternative?, by Mark Fisher
• The Socialist Challenge Today: Syriza, Corbyn, Sanders, by Leo Panitch and Sam Gindin
• Pivotal Decade: How The United States Traded Factories For Finance In The Seventies, by Judith Stein
• How To Be An Anticapitalist in the 21st Century, by Erik Olin Wright
• Automation and the Future of Work, by Aaron Benanav
• A History of America in Ten Strikes, by Erik Loomis
• Confronting Capitalism: How the World Works and How to Change It, by Vivek Chibber
• The Big Myth: How American Business Taught Us To Loathe Government And Love The Free Market, by Naomi Oreskes and Erik M. Conway
• Postcapitalist Desire: Mark Fisher, the Final Lectures, by Matt Colquhoun
• Nickel & Dimed: On (Not) Getting By In America, by Barbara Ehrenreich
• How Capitalism Ends: History, Ideology, and Progress, by Steve Paxton
• The Politics Of Bitcoin: Software As Right-Wing Extremism, by David Golumbia
• Technofeudalism: What Killed Capitalism?, by Yanis Varoufakis

The last is probably the most interesting to me right now because Varoufakis makes a really strong case, in my opinion, for his argument that a new and worse form of capitalism is upon us with the advent of "cloud capital".

As my book choice probably indicates I am drawn to a Marxist analysis of capitalism, but I also vibe with some aspects of Keynes and although I just started digging into Modern Monetary Theory I find it very compelling too. I actually own a book on the topic ("The Deficit Myth", by Stephanie Kelton) but I haven't read it yet and everything I know about it I learned from watching a couple lectures and interviews she gave.

If you only read one book from the above list it should be Capitalist Realism. I've read it twice and I think I need to read it again.

[viscousmemories]

In the most recent episode of Jon Stewart's podcast he has a couple economists weigh in on the Fed's interest rate cut of 50 bps (.5%). The more condescending of the guests, Jason Furman, kept insisting that the stimulus checks sent to Americans during the pandemic was the primary cause of inflation and that the massive interest rate hikes in the years since were necessary and good. He got pushback from Jon and the other economist, but the more he was pushed the more condescending he got. As Jon pointed out this seems to be a common thing with economists. Most other experts seem to be able to express their opinions without being so patronizing and dismissive. I think it's because economics is more witchcraft than science, but that's just me. Anyway, I decided to ask ChatGPT for its opinion and this was the (very, very good*) reply:

Prompt: Analyze the claim that the stimulus checks sent to people during the pandemic led to increased demand, thus short supply, thus inflation.

Analysis of the Claim that Pandemic Stimulus Checks Led to Inflation

Introduction

During the COVID-19 pandemic, governments worldwide implemented fiscal measures to mitigate economic downturns. In the United States, one significant measure was the distribution of stimulus checks to individuals and families. The claim is that these stimulus payments increased consumer demand, strained supply chains, and ultimately led to higher inflation. This analysis explores the validity of this claim by examining the relationship between stimulus checks, demand, supply constraints, and inflationary pressures.


Stimulus Checks and Increased Demand

1. Boost in Disposable Income:

• Direct Payments: The stimulus checks provided immediate financial relief, increasing disposable income for millions of Americans.
• Marginal Propensity to Consume (MPC): Lower-income households have a higher MPC, meaning they are more likely to spend additional income than save it.

1. Consumer Spending Patterns:

• Shift in Expenditures: With restrictions on services (like dining and travel), consumers redirected spending toward goods, particularly durable goods and home entertainment.
• Surge in Demand: Retail sectors experienced unexpected spikes in demand, exceeding pre-pandemic levels in some cases.

Supply Constraints During the Pandemic

1. Supply Chain Disruptions:

• Global Manufacturing Slowdown: Factory shutdowns, especially in countries like China, disrupted the supply of raw materials and finished goods.
• Transportation Bottlenecks: Limited cargo capacity and port congestions delayed shipments and increased shipping costs.

1. Labor Market Challenges:

• Worker Shortages: Health concerns and caregiving responsibilities led to labor shortages in key industries like manufacturing, logistics, and retail.
• Production Limitations: Companies struggled to meet increased demand due to reduced workforce availability and social distancing protocols.

1. Commodity Price Increases:

• Raw Material Costs: Prices for commodities like lumber, steel, and semiconductor chips rose sharply due to supply shortages.
• Energy Prices: Fluctuations in oil and gas prices affected transportation and production costs.

Inflationary Pressures

1. Demand-Pull Inflation:

• Excess Demand: When demand outpaces supply, prices naturally rise as consumers compete for limited goods.
• Stimulus Effect: The influx of cash from stimulus checks amplified consumer purchasing power, contributing to demand-pull inflation.

1. Cost-Push Inflation:

• Increased Production Costs: Higher costs for raw materials and transportation led businesses to raise prices to maintain profit margins.
• Wage Pressures: In some sectors, employers increased wages to attract workers, further adding to production costs.

1. Inflation Data:

• CPI Increase: The Consumer Price Index (CPI) showed significant year-over-year increases during the pandemic period.
• Core Inflation Metrics: Even when excluding volatile food and energy prices, core inflation rates exceeded targets set by the Federal Reserve.

Assessing the Contribution of Stimulus Checks

1. Stimulus Checks as One Factor:

• Multifaceted Causes: Inflation resulted from a combination of factors, including supply chain issues, commodity price spikes, and monetary policy.
• Relative Impact: While stimulus checks increased demand, their impact must be weighed against other significant contributors.

1. Savings and Debt Repayment:

• Household Behavior: A portion of recipients saved the stimulus money or used it to pay down debt, which does not contribute to immediate demand.
• Uneven Distribution: Higher-income households were more likely to save, reducing the aggregate demand impact.

1. Global Perspective:

• Worldwide Inflation Trends: Inflation rose globally, even in countries without similar stimulus programs, indicating other factors at play.
• Supply Chain Globalization: International supply chain disruptions affected goods availability worldwide, contributing to global inflation.

Alternative Explanations

1. Monetary Policy Influence:

• Low Interest Rates: Central banks maintained low interest rates, encouraging borrowing and spending.
• Quantitative Easing: Asset purchases expanded the money supply, potentially fueling inflation.

1. Pent-Up Demand:

• Reopening Economies: As restrictions lifted, consumers released pent-up demand, leading to sudden spikes in spending.
• Service Sector Shift: A delayed resurgence in service spending added to overall demand pressures.

1. Energy and Commodity Shocks:

• Oil Price Volatility: Energy price fluctuations have a direct impact on transportation and production costs.
• Extreme Weather Events: Events like hurricanes and freezes disrupted production and supply in critical regions.

Conclusion

The stimulus checks issued during the pandemic did contribute to increased consumer demand, which, in the context of constrained supply, put upward pressure on prices. However, attributing inflation solely to these payments oversimplifies a complex situation. Inflation during the pandemic was the result of multiple intertwined factors:

• Demand Factors: Increased consumer spending fueled by stimulus payments and pent-up demand.

- Supply Factors: Disruptions in global supply chains, labor shortages, and production constraints.
- Monetary Factors: Expansionary monetary policies increasing the money supply.
- Global Influences: Worldwide economic conditions affecting commodity prices and supply chains.

Final Assessment:

• Stimulus Checks' Role: They were a significant but not exclusive contributor to inflation.

- Policy Implications: Policymakers must consider the balance between providing economic relief and managing inflationary risks.
- Long-Term Effects: Understanding the relative impact of stimulus checks helps in designing future fiscal responses to economic crises.


Recommendations for Further Analysis

• Data Examination: Review detailed economic data on spending patterns following stimulus distributions.

- Comparative Studies: Analyze inflation trends in countries with varying levels of fiscal stimulus.
- Policy Evaluation: Assess the effectiveness of stimulus checks in achieving economic stabilization versus their inflationary impact.

By considering the multifaceted nature of inflation during the pandemic, we gain a more nuanced understanding of how stimulus checks fit into the broader economic picture.

*The new version of ChatGPT (4.o1-preview) is insanely better than the previous version.

[seebs]

i think that's a pretty poor response because it doesn't even mention the discussion of "companies colluding to raise prices, reflected directly in increased profits without any corresponding increase in any of their costs". and there's certainly room for debate about whether that's a big factor, but it's out there as a theory and there's numbers suggesting that it is entirely sufficient to explain essentially all of the observed inflation. (see stuff like RealPage allowing landlords to collude on rents, for instance.)

[viscousmemories]

Originally Posted by seebs

i think that's a pretty poor response because it doesn't even mention the discussion of "companies colluding to raise prices, reflected directly in increased profits without any corresponding increase in any of their costs"

I think it accurately reflects the consensus among traditional mainstream (read: new-Keynesian) economists, so in that regard I think it is a very good response. I do agree that greedflation is at least significant regardless of whether it is fully explanatory, so I fed ChatGPT your response:

ChatGPT: Expanded Analysis of the Claim that Pandemic Stimulus Checks Led to Inflation, Including Corporate Pricing Behavior

Introduction

During the COVID-19 pandemic, economies faced unprecedented disruptions. Governments issued stimulus checks to support households, which increased consumer demand. Simultaneously, concerns arose that some companies might have taken advantage of the situation by raising prices more than justified by cost increases, leading to higher profits and contributing to inflation. This analysis explores how corporate pricing strategies, including potential collusion, may have intersected with increased demand to affect inflation during the pandemic.

---

Stimulus Checks and Increased Demand

1. Boost in Consumer Spending:
- Immediate Financial Relief: Stimulus checks increased disposable income, leading to higher consumer spending, particularly on goods.
- Shift from Services to Goods: With restrictions on services like travel and dining, spending shifted towards goods, intensifying demand in certain sectors.

2. Demand-Side Pressure on Prices:
- Increased Competition for Goods: Higher demand put upward pressure on prices as consumers competed for limited products.
- Pent-Up Demand: Accumulated savings during lockdowns led to a surge in spending once restrictions eased.

---

Supply Constraints During the Pandemic

1. Global Supply Chain Disruptions:
- Production Shutdowns: Factory closures and reduced operations hindered the supply of goods.
- Logistical Challenges: Port congestions and shipping delays exacerbated supply shortages.

2. Labor Market Issues:
- Worker Availability: Health risks and caregiving responsibilities led to labor shortages, affecting production and distribution.

3. Commodity Price Fluctuations:
- Raw Material Shortages: Scarcity of inputs like semiconductors and lumber increased production costs for manufacturers.

---

Corporate Pricing Behavior and Inflation

1. Increased Corporate Profits:
- Record Earnings Reports: Some corporations reported significant profit increases during the pandemic period.
- Profit Margins Expansion: In certain industries, profit margins grew beyond pre-pandemic levels despite stable or only slightly increased costs.

2. Potential Price Gouging:
- Essential Goods and Services: Companies supplying essential items may have raised prices disproportionately.
- Legal and Ethical Concerns: Price gouging during emergencies can be illegal and is considered unethical.

3. Market Power and Concentration:
- Dominant Players: Industries with a few large companies (oligopolies) have greater ability to set prices without losing customers.
- Reduced Competition: Mergers and acquisitions over time have increased market concentration in some sectors.

4. Allegations of Collusion:
- Coordinated Price Increases: Concerns arose that firms might be tacitly or explicitly coordinating to raise prices.
- Antitrust Investigations: Regulatory bodies have looked into potential anti-competitive behaviors, though proving collusion is challenging.

---

Impact on Inflation

1. Profit-Driven Inflation:
- Price Increases Exceeding Cost Increases: When companies raise prices more than their cost increases, it contributes directly to inflation.
- Transfer of Wealth: Higher prices lead to increased corporate profits at the expense of consumers' purchasing power.

2. Demand-Pull vs. Cost-Push Inflation:
- Demand-Pull Component: Stimulus checks increased demand, which can lead to higher prices.
- Cost-Push Component: Supply constraints raised costs, but profit-driven pricing amplified the inflationary effect.

3. Wage-Price Dynamics:
- Stagnant Wages: If wages don't keep pace with price increases, consumers face a real income decline.
- Reduced Consumer Spending Power: Higher prices without wage growth can dampen future demand, potentially slowing economic recovery.

---

Evidence and Examples

1. Sector-Specific Analysis:
- Energy Sector: Gasoline prices rose significantly, with some attributing increases to supply issues and others to profit-taking.
- Food Industry: Meat prices surged, and investigations were launched into possible price manipulation by large processors.
- Shipping and Logistics: Freight companies reported substantial profit increases due to high demand and elevated shipping rates.

2. Economic Indicators:
- Corporate Profit Data: National accounts showed a rise in the share of profits in GDP during the pandemic.
- Consumer Price Index (CPI): The CPI reflected price increases across various goods and services, not all of which can be explained by cost increases alone.

---

Counterarguments and Alternative Perspectives

1. Legitimate Cost Increases:
- Higher Operating Costs: Companies faced new expenses, such as implementing health and safety measures.
- Supply Chain Expenses: Increased costs for transportation and raw materials justified some price increases.

2. Market Competition:
- Competitive Pressures: In many sectors, competition limits the ability to raise prices without losing market share.
- Temporary Market Conditions: Some profit increases may be short-term results of pandemic-related volatility.

3. Regulatory Oversight:
- Antitrust Enforcement: Authorities monitor for collusion, and significant anti-competitive behavior would likely result in legal action.
- Price Controls Risks: Implementing price controls can lead to shortages and reduced supply if not carefully managed.

---

Policy Implications

1. Enhanced Antitrust Enforcement:
- Monitoring Market Power: Regulators can increase scrutiny of industries with high market concentration.
- Promoting Competition: Policies that encourage competition can reduce the likelihood of price manipulation.

2. Transparency and Reporting:
- Corporate Accountability: Requiring detailed reporting on pricing and costs can help identify unjustified price increases.
- Public Awareness: Informing consumers about pricing practices may discourage companies from excessive price hikes.

3. Balance Between Stimulus and Inflation Risk:
- Targeted Fiscal Support: Designing stimulus measures to support those most in need can mitigate excessive demand spikes.
- Supply-Side Policies: Investing in supply chain resilience can reduce vulnerabilities that contribute to inflation.

---

Conclusion

The inflation experienced during the pandemic appears to be the result of multiple factors:

- Increased Demand from Stimulus Checks: Stimulus payments boosted consumer spending, contributing to demand-pull inflation.
- Supply Chain Disruptions: Global supply constraints created shortages, leading to cost-push inflation.
- Corporate Pricing Strategies: Some companies may have increased prices beyond what cost increases justified, expanding profit margins and exacerbating inflation.

While stimulus checks played a role in increasing demand, corporate behavior regarding pricing also significantly impacted inflation. Addressing inflation effectively requires a multifaceted approach that considers both demand-side and supply-side factors, as well as the dynamics of market power and corporate practices.

---

Recommendations for Further Consideration

- Research and Data Analysis: Conduct detailed studies to quantify the extent to which corporate pricing contributed to inflation relative to other factors.
- Policy Measures: Consider policies that promote competition, prevent anti-competitive practices, and protect consumers from unjustified price increases.
- Economic Education: Increase public understanding of how market structures and corporate behavior affect prices and inflation.

---

By incorporating the discussion of corporate pricing behavior and potential collusion, we gain a more comprehensive understanding of the factors contributing to inflation during the pandemic. This holistic view can inform better policy decisions to address current and future economic challenges.

[seebs]

I have definitely seen a lot of mainstream economists insisting that there is no greedflation, but also their argument has been "surely, no one would do that", and completely ignoring questions like "so why is it the companies whose prices went up by 3x while their costs were level are reporting record profits, exactly?"