Confirmed: Greedflation Was A Lie

Bet you won’t see this in the headlines...

Author

Tim Vollans
November 16, 2023 • Estimated Reading Time: 6 minutes

For nerdilicious geeks, zero IQ degenerates, and everyone in between…

💡 The Lightbulb
Confirmed: Greedflation Was A Lie

Bet you won’t see this in the headlines

Right. We said all along that greedflation wasn’t real.

Companies exist to make profit. In certain times they make more, in other times they make less.

When you have a pandemic, print a bunch of money and set off an inflationary event chain, things get a little distorted.

People see numbers going up and get outraged because making money is a crime that should be punished by death or banishment.

Funny: Bank of England researchers found there is no evidence of a significant rise in the profit share on aggregate in the UK or euro area

Why the disconnect?

Because the media feeds us a surface level diet, and during inflationary times. numbers don’t mean what they used to.

Profits have increased significantly in nominal terms in the UK and euro area, by somewhat more in the UK than in the euro area. But this increase in profits has been accompanied by sharp increases in inputs costs.

Indeed, total costs – defined as the sum of the cost of goods sold, wages and salaries – has increased by around 60% in the Euro area since 2020, and around 80% in the UK.

Translated: Profits have gone up if you ignore the impact of inflation

Once you account for inflation (a million ain’t worth what it used to be) and rising input costs, they haven’t actually gone up at all.

Conclusion:

… it doesn’t look like the corporate sector as a whole has seen an abnormally large increase in profits during the period of high inflation.
That is because wages, salaries and other input costs have gone up by just as much as profits.

🧠 The Big Brain
H.

The new nuclear?

We’ve seen some insane moves in ‘everything’ associated with clean energy over the past few years.

From lithium, to nuclear, to Cameco (😢) 

Turns out, Wind Power isn’t as cheap as it was supposed to be. Prices will be rising by 66% because it’s not economically viable of inflation.

However, one element has been left behind…

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⚡ The Spark
‟What We Need Is Deflation”

Seeing this view become more common as inflation falls…

We really, REALLY don’t.

Here’s why:

  • Inflation = Prices Rising

  • Disinflation = Prices Rising, But Slower (Slowerflation)

  • Deflation = Prices Falling

In two of those scenarios, people have jobs and prospects.

While falling prices sounds great (everything’s getting cheaper), if the situation persists, it’s a sign of economic weakness.

Think about the incentives too. If things are getting cheaper, you’ll wait as long as possible to buy them.

As will everyone else.

Now, some people think that this is exactly what we need.

Deflation will bring an end to the hyperfinancialisation of the economy, no more borrowing from the future, fix inequality and pay workers more fairly.

All of which are noble goals.

Deflation won’t do it: Imagine a deflationary society.

Ah wait. You don’t need to. Japan already did, in real life, for thirty years.

End hyperfinancialisation & borrowing from the future? 

It’s not gone well…

Yardeni

Fix inequality? Pay workers more fairly?

Deflation or low inflation has weighed on Japan’s economy for decades.

Money tends to be hoarded rather than spent (after all, what’s the rush if prices are falling/stable?)

Second order effects: Overall demand in the economy is lower. Consumption falls. Stagnation.

In Japan’s case, this state has been pretty consistent. A cycle that can’t be broken. More nerdy stuff on Japan’s economy here.

And the societal consequences of persistent deflation pressures.

Worst case, deflation is Great Depression territory:

Between 1929 and 1933, real gross domestic product per capita plummeted by nearly 30% and the unemployment rate soared from about 3% to over 25%. The consumer price index (CPI) plunged by nearly 25%, with the rate of deflation exceeding 10% in 1932.

Inflation’s no fun. But deflation is worse on every possible level.

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